SOCIAL TOPICS (Archive): HISTORY OF WALDEN ASSET MANAGEMENT/SRI

Published, November 1994

       Socially responsive investors are intensely concerned with the fundamental issues of sustainable development: creating and maintaining good jobs and wholesome communities, making our social system more durable by adding to the fairness and justice of its outcomes, sustaining the natural environment on which all life and development depends, and increasing the time horizon for considering the consequences of economic decisions.

       We have identified a number of ways in which policies of the federal government could use more of the energy and insights of the socially responsive investment community toward the achievement of sustainable development. At a time when government resources for investment in sustainable development are perceived as very scarce or unavailable, the recommendations here promise to increase the size and impact of such investments from non-federal sectors with trivial cost to tax payers.

1. CONGRESS SHOULD BE ASKED TO LEGISLATE FULLER DISCLOSURE OF ALL OF THE RAMIFICATIONS OF ECONOMIC ACTIVITY.

       Most companies should be required to publicly disclose their Equal Employment Opportunity (EEO) records. This would provide new leverage to concerned investors and other citizens working for a more just society. Increasing the public disclosure of corporate EEO data might serve to improve the economic enfranchisement of groups that continue to suffer from discrimination.

       It is equally important to mandate disclosure of overseas practices with respect to fair and equal employment and the environment. Eliminating employment at home by substituting work abroad with unsustainable exploitation of workers or the environment is not consistent with the sustained growth of our economy or our companies. Investors and the public are entitled to know if companies are selling toxic products, operating unsafe factories, polluting the environment, employing children or using forced labor anywhere in the world.

2. THE DEPARTMENT OF COMMERCE SHOULD COLLECT AND PUBLISH DATA THAT MEASURES THE QUALITY AND SUSTAINABILITY OF OUR LIVING STANDARD IN WAYS THAT THE NATIONAL INCOME ACCOUNTS DO NOT.

       For some years, the World Bank has published a list of World Development Indicators for each country that goes beyond the conventional national income, foreign trade and financial descriptors of economies by also considering other measures of the quality of economic life and its sustainability. These expanded indicators include the distribution of income, the rate of literacy, and other educational attainments; infant mortality, life expectancy and other measures of public health; measures of protected forest and wilderness, air quality and other dimensions of the environment; measures of the relative status of women and children, and many more.

       For the Department of Commerce to calculate these variables and publish them as an integral part of the nation’s economic picture would be an important symbolic act, indicating that these measures of quality and sustainability are as important and officially recognized indicators as the more traditional national income and financial measures.

3. THE SECURITIES AND EXCHANGE COMMISSION (SEC) SHOULD GUARANTEE AND DEFEND THE ABILITY OF SHAREHOLDERS TO GUIDE THEIR COMPANIES’ EMPLOYMENT AND ENVIRONMENTAL PRACTICES.

       Despite a broadening of shareholder interest in areas of corporate governance and corporate social responsibility, the SEC continues to attempt to thwart discussions about sustainable development from occurring among shareholders. By banning issues such as equal opportunity and human rights from the shareholder resolution process, the SEC is explicitly excluding the very items that pertain to sustainable development. Such a posture sends a message that discrimination and environmental degradation are a part of ordinary business, unworthy of broader examination. Ironically the SEC continues to support votes on much more mundane business matters such as which of the major accounting firms should be selected.

       Despite the SEC’s attempts to limit shareholder involvement, interest continues to grow among large institutional shareholders. As more investors realize that environmental performance, equal employment opportunity and other issues of corporate responsibility have significant and long-term potential effects on their investments, support for shareholder resolutions is becoming a significant democratic force for social change.

4. DEPARTMENT OF LABOR AND CONGRESS SHOULD REFORMULATE THE “PRUDENT PERSON” RULE EMBODIED IN THE EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA), TAKING ACCOUNT OF ALL THE FACTORS RELEVANT TO A PRUDENT INVESTMENT.

       The prudent person rule as originally laid down by Judge Samuel Putnam, stating that a man was obliged to invest the money of others no differently than a prudent man would invest his own funds, has the conservative effect of ensconcing the established wisdom. For instance, it is prudent under the law to own stock in a company whose major product is known to kill its consumers or whose products are derived from clear-cut forests, while it would be imprudent under the law to own a company whose express purpose was to provide banking services to an under-served neighborhood and impose limits on the return to its shareholders. Investment in housing increases human hope and esteem and reduces the risk of crime and social decay. In contrast, investments in clear cutting and unsafe products undermine social infrastructure by treating land and life as disposable — a practice that increases risk of poverty, violence and environmental degradation.

       The argument that any particular, far-sighted investment in affordable housing, community development or ecologically sound production is imprudent because it does not provide the maximum financial return to future retirees has been the most frequent and effective block to more investment in sustainable economic projects.

       A rewording of ERISA’s definition of prudence would have a profound effect on the legal limits for investment choices beyond the substantial assets directly governed by ERISA. However, care must be taken that a more complete definition of prudence will continue to prohibit fiduciaries from acting to benefit themselves at the expense of beneficiaries. Surely this behavior can be distinguished from taking account of benefits to all society including the beneficiaries as a reason for lower financial returns.

5. REGULATORY AGENCIES SHOULD TIGHTEN THE ENFORCEMENT OF LAWS ALREADY ON THE BOOKS, WHILE CONGRESS SHOULD BE ASKED TO INCREASE FINES AND SANCTIONS TO A LEVEL WHERE THE COSTS OF VIOLATING PUBLIC POLICY WILL NO LONGER BE REGARDED AS AN ORDINARY “COST OF DOING BUSINESS.”

       Many laws promoting sustainable development already exist, yet the penalties for violating these laws are often small and routinely written-off as a cost of doing business. Historically the fines associated with violations of federal environmental, worker safety, or fair credit and employment laws have not provided much of a deterrent to assure compliance with federal policy.

       Other powerful sanctions are also important. The threat of damage to corporate reputation (made possible through increased public disclosure) or more recent moves to prosecute blatant crimes, particularly in the area of the environment, as criminal offenses can be valuable tools in working toward sustainable economic policies.