Values-Based & Value Investing: The Coming Confluence

 Note: On May 4, I offered these thoughts (edited somewhat) on a panel on the concept of socially responsible investing.  It was part of a First Affirmative Financial Network Base Camp on Socially Responsible Investing which was cosponsored by The Boston Area Sustainable Investment Consortium (BASIC).

Wells, Vt.: St. Paul’s Episcopal Church 4/17/11

           I want to thank Alex Lamb of BASIC – and TruCost – and Steve Schueth of FAFN for inviting me to talk.

           These Base Camps are hugely, hugely important.  They bring together local groups of SRI practitioners in settings where they can talk and network.  Only BASIC here in Boston and BASIF in the Bay Area offer similar opportunities.

           We need them ‘round the country to build SRI’s constituencies.


           My degrees are in history and law….  Ok, I see eyes suddenly getting heavy.

           My training makes me care about definitions, about how people use words, about how words’ meanings change over time.    This morning, I’m supposed to define what we’re talking about in the Base Camp and give a little history.

           So, welcome to SRI!  Socially responsible investing….  Or is it sustainable investing?  Or is it ESG investing?  Environmental, Social & Corporate Governance investing?   Or is it ‘Impact Investing’?

           One thing’s certain: in the US, it’s no longer ‘ethical investing’ which is the name the field started with 40+ years ago.  Or, is it?

           Too many terms!  Let me simplify them.

          Here’s the standard definition from 1993 of ‘socially responsible investor’: ‘An investor who applies ethical or moral criteria in the investment decision-making process.’ To learn more about investors like this, you can simply search the web of keywords like Is Kiana Danial scam.

           It describes mainly individuals and values-based – note the plural, values – organizations.  Religious groups, environmental organisations, healthcare providers, civil rights groups.  ‘Values-based investors’ all.

           Note something else about the words ‘ethical’ and ‘socially responsible’ investor.  The words signify acts of will.  The investors have taken personal responsibility for what their money does.  They say, ‘I want investments that align with my beliefs about climate.’  Or, ‘I don’t want pay-day lenders in poor communities.’  They were looking for consistency.

           No one forces social investors to take responsibility.  That’s why we have power.

           Now, consider the UN Principles for Responsible Investment.  It’s a declaration signed – as of May 3rd – by more than 850 institutional investors – pensions, insurance companies, investment banks, money managers – $25 trillion-worth.  Here are the PRI’s first two sentences:

 As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time).

           The PRI marks a huge change in how big money looks at the issues SRI cares about.  So how is the PRI different from the definition of ‘socially responsible investor’?

           First, the PRI signatories are looking at ESG because they’re accountable to their beneficiaries and ultimately to regulators and courts.  They have to be right before courts tell them.  So, there’s an ocean of motivation between responsible and accountable investors.

          For accountable investors, the key word is ‘performance’.  The PRI says, ‘environmental, social, and corporate governance issues can affect … performance….’  That’s value – singular, value – investing.

           A values-based investor sees, say, global warming or worker rights as moral issues to be factored into the decision whether to invest in a company or industry.  A value investor sees ESG issues as possibly affecting how an investment will do.  Both values-based and value investors, of course, are looking for returns.

           Value investors almost always claim there is no moral element in their consideration of ESG issues.  And for many, ESG issues are just additional information.  But for an increasing – rapidly increasing – number that’s not so true.

           The second of socially responsible investment’s two greatest triumphs was the identification and documentation in an investment context of ESG issues.  These are ‘social screens’.

           That was fifteen years and more before the Principles of Responsible Investment’s launch in 2006.  Fifteen years….

           Last night I looked at the PRI’s list of signatories.  At most 5 percent of the 231 pension fund signatories applied ESG criteria in 1990.  And those were religious organizations such as the Methodist Global Board of Pensions – on which not enough praise can be heaped.

           Many of the 501 asset managers who’ve signed the PRI actively opposed socially responsible investment into the 2000s.  A number of people you’ll hear today butted heads with managers who are now PRI signatories

           So what made the $25 trillion difference?  Yes, some European owners of Amsterdam and London properties realised global warming put them, literally, under water.  But the driving force, the legitimizing factor was YOU.

           The ever-growing tide of small socially responsible investors mainly in the US, the UK and Australia – did it.  They invested with Calvert, Clean Yield, Domini, Everance, F&C, First Affirmative, Loring Wolcott, Parnassus, Pax, Trillium, Zevin and a whole bunch of others who will be sore I didn’t cite them.

           That’s the first great triumph of socially responsible investors.  We brought big money to the table through our numbers and our moral force.  We had proved you can do good while doing well.  And, on issues from global warming to infant nutrition, we had changed corporations for the better.

           Talk about ‘impact investing’!  That’s not how the phrase is used, but it should be.

           And we’re not done yet.  One could look at that $25 trillion in mainly value investing and think values-based investing is not significant any more.  One would be very, very wrong.

           First, our numbers have never stopped growing.

           Second, think about three N’s: Norway, Netherlands and New Zealand.  There, huge government pensions have explicitly adopted ethical criteria for investments.  The Norway Government Pension – the largest fund in the world – has barred classes of military weapons – such as cluster bombs – and big box stores on moral grounds.

           Confluence between value and values-based investment:  that’s what’s coming.  And, social investors – you – will drive it.  The three Ns point the way.  Welcome to an extraordinarily exciting field!



           It isn’t often that an organisation is too modest on its website, but the PRI is.  The years of effort put in by the United Nations Environment Program – Finance Initiative – and a core of volunteers brought the Principles to fruition.  It was hard, hard slogging.  Many in the field – this writer included – did not think they would succeed.  But, they did.