Socially Responsible Investing & Value Alignment

Socially responsible investing (SRI) is a big topic, and a complex issue, one about which I cannot claim to know a lot. The basic concept is clear enough: when people make investments, they send their money out into the world to work for them. People engaged in SRI are trying to make sure that their money is, in addition to earning them a profit, doing some good in the world, rather than evil.

There are a number of kinds of SRI. For example, there are investment funds that use “negative screens” (to filter out harmful industries like tobacco), and there are “positive investment” (in which funds focus on investing in companies that are seen as producing positive social impact). We can also distinguish socially-responsible mutual funds from government-controlled funds, such as pension funds.

(For other examples, check out the Wikipedia page on the topic, here.)

Setting aside the kinds of distinctions mentioned above, I think we can usefully divide socially responsible investments into two categories, from an ethical point of view, rooted in 2 different kinds of objectives.

On one hand, there’s the kind of investment that seeks to avoid participating in what are relatively clear-cut, ethically bad practices. For example, child slavery. Trafficking in blood diamonds might be another good example. Responsible investment in this sense means not allowing your money to be used for what are clearly bad purposes. In this sense, we all ought to engage in socially-responsible investment.

(Notice that investments avoiding all child labour do not fall into the above category, because child labour, while always unfortunate, is not always evil. There are cases in which child labour is a sad necessity for poor families.)

On the other hand, there’s what we might call “ethical alignment” investments, in which a particular investor (small or large) attempts to make sure their money is invested only in companies or categories of companies that are consistent with their own values. Imagine, for example, a hard-core pacifist refusing to invest in companies that produce weapons even for peace-keeping purposes. Or picture a labour union investing only in companies with an excellent track-record in terms of labour relations. In such cases, the point is not that the corporate behaviour in question is categorically good or bad; the point is that they align (or fail to align) with the investor’s own core values.

I’m sure someone reading this will know much more about SRI than I do. Is the above distinction one already found in that world?

11 comments so far

  1. Gregory Sadler on

    I’m not an expert in SRI either, and don’t know of other distinctions. But, I do find somewhat troubling the notion of “ethical alignment” investments, for two reasons.

    First, as you point out “the point is not that the corporate behaviour in question is categorically good or bad; the point is that they align (or fail to align) with the investor’s own core values” — this simply transplants the typical (and typically unargued for) ethical stances of many interest groups or organizations into evaluation of companies into the marketplace. It tells us almost nothing about whether the policies and values of the companies are really good or bad — sometimes not even whether they are genuinely useful or harmful (a different value modality). In fact, it can be just a blind for investing in those who support one’s interests (e.g. a union supporting union-friendly companies)

    Second, I suspect that there will be a general ideological tilt to “ethical alignment” SRI, one similar to those in other discourses (e.g. “social justice”). Those who, for instance, think that the marketplace should generally weed our unethical practices are unlikely to be billing themselves as doing SRI, participating in those discourses, etc. By their lights, they may well be doing SRI — just as much as investors representing themselves as doing so, but they will not call it such.

    • Bob on


      I must admit, I do not understand what is troubling you.

      Every economic transaction (a purchase or investment decision by an individual) creates a portfolio of benefits for each party to the transaction. Aligning your purchase or investment decision with your beliefs MAY create a particular type of benefit – you may feel good about what you have done (however you may loose others benefits,e.g. the size of return MAY go down).

      It does not matter if the company is bad, good, or silly. What matters is the size of the total portfolio of benefits the investor gets (return, liquidity, feel good factor, etc…) and that the investor believes that the overall benefit s/he is getting is larger with ethical alignment.

  2. Chris MacDonald on


    Thanks for that. Yes, there’s a lot left to be said about this, for sure. I was merely trying to sketch out what I take to be a new way of dividing up the SRI turf. And yes, you’re right I think that it means a lot of SRI ends up amounting to people acting on their own un-argued-for conclusions. But I suspect that are acting self-interestedly in only a minority of cases. More often, I suspect they will be acting on a misguided assumption that their values are more widely-shared (or ought to be more widely shared) than they are. Sometimes it may be a desire to avoid having (what they see as) dirty hands.


  3. jilly on

    Hi Chris,

    I wonder whether your distinction isn’t one of degree rather than kind. If you think of it the opposite way around, then you could say that a socially responsible investor sieves through available investments by making ethical distinctions that other investors do not see as important. You and I may both see child slavery as appalling, and may make investments based on expressing that view, but you may see the manufacture of weapons for peacekeeping purposes as ethically acceptable, while I do view all weapons manufacture as reprehensible. Similarly, a fundamentalist Christian may hold views on socially responsible investing that result in investment choices similar to those of a union supporter, but not identical.

    Sadly, there are very few things in this world that are universally deplored–in fact, I cannot think offhand of a single one, not even child slavery or the types of warfare supported by blood diamonds.

    By the way, I am not saying that the distinction might not be a useful one, merely that I don’t think it is absolute.


  4. Chris MacDonald on


    I agree: it’s definitely a matter of degree. I just wanted to sketch out the two types to illustrate that, in principle:
    a) people can have two different intentions in investing ‘responsibly’?
    b) it’s possible for people to think they’re doing one thing, when in fact they’re doing another.


  5. elaine cohen on

    hello Chris – you state “child labour, while always unfortunate, is not always evil. There are cases in which child labour is a sad necessity for poor families” . I beg to differ. The cases in which you refer to child labour as a “sad necessity” are the production of an “evil” economy which governments and industry have the power to change. Child labor is not a necessity. It is a product of inequitable economies. Child labour should be eradicated, and it is not the poor families who are unable to support themselves who are responsible but those who determine economic policy, purchasing policy and trading frameworks and create consumer demand at unrealistic prices. Child labour is always an infringement of human rights. Always.

    warm regards, elaine

    • Chris MacDonald on


      We should, of course, seek to eradicate child labour at a systemic level.

      But it cannot be wrong to give a child a job if that will let him & his family live, rather than starve. Regardless of the *causes* of such poverty, the fact remains that some children genuinely need to work, in order not to face worse consequences.


  6. Joakim Sandberg on

    Hi Chris,

    I introduce the distinction that you make here, plus discuss the philosophical merits of ‘conscience investing’, in an article in Business Ethics: A European Review from 2007 (called Should I invest with my conscience?). But this is obviously only one of the many distinctions that one can make to describe variations in the philosophy of SRI.

    — Joakim

  7. Jeremy Newbegin on

    Having given advice on ethical and socially responsible investment for the best part of twenty five years I can confirm that it is very definitely not a black and White subject. What is ethical to one person could be irrelevant to another. My experience tells me that there are some people who clearly are vert motivated to be specific about where their money goes. Others just want to generally “do their bit”. In other words help to make this world a better place.

    We all know of course that on our own we will make little difference, but as has been demonstrated by ordinary people in Tunisia and Egypt recently, if enough of you care then you can actually change things.

    Most people invest their money without any consideration for where their money will go, and would be mortified (well some would anyway) to Find out that they were investing in BAT or as just two examples. If more people cared enough to start asking what was being done with their money we might actually start to see more fairness…..and perhaps a meaningful education for all children. It must be betterto try and change things rather than to keep the status quo?

  8. Sheila Speed on

    Hi Chris,
    I would like to add answerable and accountable to the discussion especially in matters relating to being responsible. Why put ‘responsible’ in Socially Responsible Investing if the investors are not being answerable and accountable in their investments? Which means as you have already discussed, that ethical behaviour does play a major role in SRI. Why do we allow external conditions (policies, monetary systems, politics, economics, etc.) to impact our internal motivations? Why don’t we recognise valuable contributions from their origins and reinforce behaviours that define the values that are good for all concerned. I would like to see every organisation having the vision, the standards, the values and the goals of SRI. And with every single employee being involved in the process by living the values and sharing them slowly, carefully and properly. In this way SRI will evolve from the inside out rather than from the outside in.

  9. Chis on

    Hi, Chris,
    We have researched environmental, social and governance,(ESG) for some 15 years, we have also been a noted developer of ISO International environmental standards.
    Firstly, sustainably based ESG analysis is agnostic and non prescriptive,it does not focus upon what product is made,rather, it aims to measure, (in ESG terms) how a product or service is made.
    The original UNEP F1 programme set out to find a methodology whereby sustainably based ESG implementation may be risk rated, a reliable single global system perhaps based upon the tried and tested ISO platform.
    Since SRI, RI, Green, Eco and Ethical are entirely subjective non quantifiable , (for risk analytical purposes) terminologies, these were expected to be an additional filter to fulfill particular client investment requirements post performing the quantitive ESG risk analysis. However, the major SRI based ratings agencies merely changed their name to ESG rating agencies, (SRI & sustainably based ESG are two separate entities).

    The current SRI ratings industry is termed by established ESG financial academia as ‘The Emperors New Clothes of Investing’, only those selling the ratings can see any value in SRI ratings masquerading as ESG ratings. Anyone can call themselves an ESG ratings agency or SRI risk manger, there are no qualifications, no regulatory oversight and 90% of it’s practitioners have no experience in environmental or social risk analysis. The circularity of these ratings agencies follows the same pattern as the sub-prime ratings debacle, the rankings depend upon the ratings and the ratings depend upon .self disclosed, (by corporate PR and Marketing departments) unverified information added to which is the fact that this ‘information’ is at least a year old when disclosed in corporate annual reports. Companies wishing to gain better ESG ratings then employ the SRI based ESG ratings agencies consulting arm to ‘assist’,(for a large fee paid for by the shareholders) the very practice that the SEC banned after the sub-prime collapse.
    A recent study of 150 Investment Managers found that only 2% were able to distinguish between a standard and ,codes of practice, stewardship codes, and all the voluntary disclosure initiatives, likewise, only one percent of 34 leading ‘ESG’ ratings agencies could define the difference between a standard and other terminologies for voluntary disclosure.
    Cerin & Dobers analysis of SRI based ESG risk analysis found that on average the most prolific corporate reporters of ESG ‘information’ emitted five times the CO2 than companies who did not report. The SRI Industry continues to conflate mostly worthy and important aspects of environmental conservation and social upliftment for their own financial ends and to the detriment of achieving real ESG progress.

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