SRI dilemma
Most of my clients want to invest in "socially responsible" funds. I need to smooth out my answer to this. I still haven't found a really good conversation about this anywhere in my industry even though I've tried from various times.
The trap for me is that my clients are using it to signal, and if I denigrate them as investments I'm - as far as the client can tell - signalling that I'm not in favor of their agenda. So I find myself signalling madly back
Threads I have:
Activist investing means being an activist shareholder. You vote the proxies, you do shareholder initiatives. They usually have a profit motive. It isn't the thing that most SJW would consider doing.
Impact Investing is different. It is the form of activism that might appeal to my clients. I need to research whether any of this is worth it.
Socially Responsible Investing means whatever you want it to mean. It's signalling, it's religious practice, it's lack of information all tied up in an earning opportunity for mutual fund companies. The best I can tell them is that it'll cost at least $175 per $10,000 investment each year to pay the mutual fund staff for their work. There is no scenario that I've seen where you make more on SRI mutual funds than on index funds. (This is not necessarily true for bonds, though.) If there *is* any dimension that adds profitability then it would be lovely to find it, but that needs more research as far as I can tell. One fund claimed they had it by backfilling, but I haven't checked lately. http://www.eqltfund.com/
Basically, I consider a values-driven spending (and, by extension, income) to be an appropriate concept, but it's aspirational in nature. You try to improve your ratio, the way you try to improve your gas mileage. So perhaps right now 50% of your economic behavior is in line with your values but you buy clothing made by enslaved children and oil extracted from deep-water drilling and your engagement ring was made from a blood diamond (because you didn't realize when you bought them.) So you learn and change and get better, but don't throw out your engagement ring. And maybe you keep buying gasoline and heating oil and fracked natural gas, but you use your excess cash flow to contribute to campaigns of politicians who you think will create regulations to protect the environment from capitalist-driven externalities.
So, to get back to SRI, is that $175 you pay to have your mutual fund at Green Century Fund the best use of your $175? Is that the charitable purpose you think it's best put to? Assume for the moment that I agree that it's a nice place to spend the money but is it the best place for THOSE dollars, or do you have better ways you express your values with $175? Knowing that after you've gone a few more steps up the ratio rung that maybe this is something you do when 75% of your economic transactions are in line with your values rather than the mere 50% that they are now?
A separate issue is whether SRI funds (other than impact investing) have any possibility of effecting change even slightly. Other than initial public offerings, Exxon doesn't get a dime of your money when you buy the stock. So all you're doing is cleansing your own income stream of taint. Clients are unclear about this. But I'm fine with them spending their own money to cleanse their income stream of taint if they want - it's their money. I just don't think there's a case to be made that it improves the world in any way, anymore than painting their livingroom yellow would improve the world any. Most of the time they're trying to spend their money in line with their values, though, and I approve of that.
Carl Richards has something on Values-Driven Spending that I could look into. https://www.tillerhq.com/welcome/values-driven
One of the reasons I like to tie it back to "values" is that I think it's really quite reasonable to mention that SRI filters mean different things to different people. You only have to scratch the surface for an instant to discover the discontinuities. For example, Dimensional Funds has a well-constructed index that uses a SRI filter designed for the Catholic Church. It's a low-cost high-quality investment portfolio, but I doubt many of my clients would appreciate the values behind it. And I'm all in favor of croft-farming but horribly against monoculture and the way high fructose corn syrup is in everything. So I'm 100% fine with tobacco growing for poor Kentucky families and against factory farming corn. Yet every SRI filter seems to be against tobacco products sold to informed adults but fine with corn products sold to uninformed children. (I use this with my locavore clients and they nod - we grow tobacco around here and it keeps the flood plains in agricultural land dotted with scenic tobacco-drying sheds.)
What I don't usually bring up is that I worked at a defense industry for a while building gun sights. Remember the Iranian Airbus disaster in 1988? A Navy Destroyer shot off a guided missile to an unidentified plane that turned out to be a passenger airplane. The main reason that tragedy happened is that the gun sights weren't good enough to eyeball a frigging passenger airplane. Despite being an anti-war activist, I spent the next five years of my life building a gun sight for the Arleigh Burke class destroyers. The Aegis Combat System is absolutely a weapon of war, but it's basically a way to make sure that you only hit what you're supposed to hit. Reducing "collateral damage" seems like a REALLY IMPORTANT way to reduce the misery of war, because the only thing worse than shooting off guided missiles is to shoot them off at targets you can't quite see. I worked WITHIN the system and daresay that my work for a defense contractor saved more lives than any of the protestors outside the gates did.
So, to my mind, it's super hard to declare any industry as horrible. I don't think a profit motive makes people horrible: my doctor is a lovely woman but she'd choose something else to do with her brilliance and problem-solving skills if she didn't get paid. I don't think most of us know about the truly horrible things we're doing with our money - the way rubber was harvested for our shoes or the way children go hungry because quinoa is an expensive trendy gluten-free option. And when a boycott idea sweeps through people get it wrong as often as not - that whole thing about Linda Bean, Maine's crazy old aunt, backing Trump made SJWs suggest a boycott of Maine's most progressive employer because she is a 2% owner of the company? That was horrifying to watch my clients do. And how can you give to your local "Big Brothers Big Sisters" when children in Cambodia are being sold into sex slavery for lack of a few dollars to fund The Riverkids?
But look what a bummer I just was. Actual saints are impossibly awful to live with. (I cite Tracy Kidder's "Mountains Beyond Mountains" here.) Doing good in all the ways you can, to all the people you can, as long as ever you can is laudible, though, and far be it from me to tell people they shouldn't pick their investments as when and how they do it.
So how do I navigate the fact that they're really terrible investments?
The trap for me is that my clients are using it to signal, and if I denigrate them as investments I'm - as far as the client can tell - signalling that I'm not in favor of their agenda. So I find myself signalling madly back
Threads I have:
Activist investing means being an activist shareholder. You vote the proxies, you do shareholder initiatives. They usually have a profit motive. It isn't the thing that most SJW would consider doing.
Impact Investing is different. It is the form of activism that might appeal to my clients. I need to research whether any of this is worth it.
Socially Responsible Investing means whatever you want it to mean. It's signalling, it's religious practice, it's lack of information all tied up in an earning opportunity for mutual fund companies. The best I can tell them is that it'll cost at least $175 per $10,000 investment each year to pay the mutual fund staff for their work. There is no scenario that I've seen where you make more on SRI mutual funds than on index funds. (This is not necessarily true for bonds, though.) If there *is* any dimension that adds profitability then it would be lovely to find it, but that needs more research as far as I can tell. One fund claimed they had it by backfilling, but I haven't checked lately. http://www.eqltfund.com/
Basically, I consider a values-driven spending (and, by extension, income) to be an appropriate concept, but it's aspirational in nature. You try to improve your ratio, the way you try to improve your gas mileage. So perhaps right now 50% of your economic behavior is in line with your values but you buy clothing made by enslaved children and oil extracted from deep-water drilling and your engagement ring was made from a blood diamond (because you didn't realize when you bought them.) So you learn and change and get better, but don't throw out your engagement ring. And maybe you keep buying gasoline and heating oil and fracked natural gas, but you use your excess cash flow to contribute to campaigns of politicians who you think will create regulations to protect the environment from capitalist-driven externalities.
So, to get back to SRI, is that $175 you pay to have your mutual fund at Green Century Fund the best use of your $175? Is that the charitable purpose you think it's best put to? Assume for the moment that I agree that it's a nice place to spend the money but is it the best place for THOSE dollars, or do you have better ways you express your values with $175? Knowing that after you've gone a few more steps up the ratio rung that maybe this is something you do when 75% of your economic transactions are in line with your values rather than the mere 50% that they are now?
A separate issue is whether SRI funds (other than impact investing) have any possibility of effecting change even slightly. Other than initial public offerings, Exxon doesn't get a dime of your money when you buy the stock. So all you're doing is cleansing your own income stream of taint. Clients are unclear about this. But I'm fine with them spending their own money to cleanse their income stream of taint if they want - it's their money. I just don't think there's a case to be made that it improves the world in any way, anymore than painting their livingroom yellow would improve the world any. Most of the time they're trying to spend their money in line with their values, though, and I approve of that.
Carl Richards has something on Values-Driven Spending that I could look into. https://www.tillerhq.com/welcome/values-driven
One of the reasons I like to tie it back to "values" is that I think it's really quite reasonable to mention that SRI filters mean different things to different people. You only have to scratch the surface for an instant to discover the discontinuities. For example, Dimensional Funds has a well-constructed index that uses a SRI filter designed for the Catholic Church. It's a low-cost high-quality investment portfolio, but I doubt many of my clients would appreciate the values behind it. And I'm all in favor of croft-farming but horribly against monoculture and the way high fructose corn syrup is in everything. So I'm 100% fine with tobacco growing for poor Kentucky families and against factory farming corn. Yet every SRI filter seems to be against tobacco products sold to informed adults but fine with corn products sold to uninformed children. (I use this with my locavore clients and they nod - we grow tobacco around here and it keeps the flood plains in agricultural land dotted with scenic tobacco-drying sheds.)
What I don't usually bring up is that I worked at a defense industry for a while building gun sights. Remember the Iranian Airbus disaster in 1988? A Navy Destroyer shot off a guided missile to an unidentified plane that turned out to be a passenger airplane. The main reason that tragedy happened is that the gun sights weren't good enough to eyeball a frigging passenger airplane. Despite being an anti-war activist, I spent the next five years of my life building a gun sight for the Arleigh Burke class destroyers. The Aegis Combat System is absolutely a weapon of war, but it's basically a way to make sure that you only hit what you're supposed to hit. Reducing "collateral damage" seems like a REALLY IMPORTANT way to reduce the misery of war, because the only thing worse than shooting off guided missiles is to shoot them off at targets you can't quite see. I worked WITHIN the system and daresay that my work for a defense contractor saved more lives than any of the protestors outside the gates did.
So, to my mind, it's super hard to declare any industry as horrible. I don't think a profit motive makes people horrible: my doctor is a lovely woman but she'd choose something else to do with her brilliance and problem-solving skills if she didn't get paid. I don't think most of us know about the truly horrible things we're doing with our money - the way rubber was harvested for our shoes or the way children go hungry because quinoa is an expensive trendy gluten-free option. And when a boycott idea sweeps through people get it wrong as often as not - that whole thing about Linda Bean, Maine's crazy old aunt, backing Trump made SJWs suggest a boycott of Maine's most progressive employer because she is a 2% owner of the company? That was horrifying to watch my clients do. And how can you give to your local "Big Brothers Big Sisters" when children in Cambodia are being sold into sex slavery for lack of a few dollars to fund The Riverkids?
But look what a bummer I just was. Actual saints are impossibly awful to live with. (I cite Tracy Kidder's "Mountains Beyond Mountains" here.) Doing good in all the ways you can, to all the people you can, as long as ever you can is laudible, though, and far be it from me to tell people they shouldn't pick their investments as when and how they do it.
So how do I navigate the fact that they're really terrible investments?