Is Capitalism Growing More Socially Conscious?

graphs Recent trends suggest that both corporations and investors are taking socially responsible investing (SRI) more seriously. A study released by the Social Investment Research Analysts Network on July 11 reveals that 34 companies listed on the S&P 100, a weighted index of 100 major blue chip companies, now base their corporate social responsibility (CSR) reports on a recognized third-party standard—the Global Reporting Initiative’s Sustainability Reporting Guidelines. The use of uniform reporting criteria is critical to helping SRI firms select appropriate companies in which to invest. Other indicators similarly point to corporations’ greater embrace of social responsibility: according to the same study, 79 of the S&P 100 firms now have CSR websites, up 34 percent from last year.

The growth of CSR among major corporations has been spurred by a parallel development in social consciousness among investment firms. In April, the United Nations launched its new Principles for Responsible Investment, a series of guidelines on how to integrate environmental, social, and corporate governance issues into the financial industry. As of August 1, the diverse signatories to the Principles together controlled more than $5 trillion in assets. This enormous quantity of money, expected to grow as the initiative wins new adherents, will make SRI central to the practices of the financial investment industry.

Yet merely reporting on corporate social responsibility is not enough, some argue; firms need to integrate responsible practices into all levels of their business. Socially responsible investing is thought to offer the best hope, since investors are the ultimate owners of most corporations. Recent years have witnessed a dramatic increase in the money devoted to SRI. According to the Washington, D.C.-based Social Investment Forum, $2.29 trillion was managed under SRI funds in 2005—$20 billion more than in 2003, and an estimated 9.4 percent of total global assets. More significantly, there has been a qualitative shift from individual or marginal investors to larger institutional investing firms, such as government pensions. As a group, institutional investors control most publicly traded companies in industrialized countries and thus wield immense power.

Experience shows that SRI can be as profitable as more traditional enterprises, while most analysis shows little or no difference in performance between SRI and non-SRI funds. A number of SRI funds have even surpassed the standard stock market indices. In June, for example, the Parnassus Small Cap Fund (which invests in companies worth less than $3 billion) registered one-year returns of 17.4 percent—nearly 10 percent higher than its benchmark index, the Russell2000. As long as investors can maintain a good conscience without sacrificing profits, socially responsible investing is likely to flourish. But society and the environment will ultimately benefit most from their enlightened self-interest. 

This story was produced by Eye on Earth, a joint project of the Worldwatch Institute and the blue moon fund. View the complete archive of Eye on Earth stories, or contact Staff Writer Alana Herro at aherro [AT] worldwatch [DOT] org with your questions, comments, and story ideas.