From The New Social Policy Agenda in Asia, Proceedings of the Manila Social Forum, A joint publication of the Asian Development Bank and The World Bank, August 2000.
Introduction
The Asian financial crisis resulted in a substantial increase in poverty and worsening of social development in the region. However, this affected the social responsibility of international business very little. Justice and sustainability are not much spoken of on Wall Street today. But they should be, for it is Wall Street, and its global counterparts that are fueling the economic engine of the world – corporations. The entrepreneurs on Wall Street frequently forget that corporations are not the work of acts of God. They were created by humans as an efficient means of providing ourselves with food, clothing, shelter, health care, communication, and comforts.
Companies provide us with desired goods and services, but they do not exist in a vacuum. They must therefore be encouraged to act in a manner that is socially and ethically responsible to the various stakeholders they interact with. An effective means of such encouragement is active shareholder participation. Socially responsible investment, by creating information on stakeholders impact, has the potential to continually assist in this encouragement. In the United States, the mutual fund is the primary instrument of the socially responsible investment industry. The mutual funds that serve socially responsible investors are committed to integrating into their products the following three processes: screened investment, advocacy and education, and community development investments.
Making Social Investments Possible
Screened Investment
At Domini Social Investments our social screening process grew out of both essentially faith-based standards and stakeholders impact analysis. We eliminate alcohol, tobacco, gambling and weapons. Additionally, an early environmental movement led to the screening out of nuclear power. But the exciting work begins as we evaluate each corporation in six basic areas: product safety and usefulness, employment practices, diversity initiatives, community initiatives, non-US impact and the environment. We collect and analyze data, sort companies that seem to be above average in positive social impact and select a portfolio that meets our requirements.
Advocacy and Education
The mutual funds serving socially responsible investors file and vote shareholder resolutions, organize letter-writing campaigns, publish articles on our web site, and enter into direct dialogue with the management of the companies in which we hold stock. Direct dialogue is particularly useful as a way of dealing with a tough new emerging issue such as the one we in the United States call the sweatshop issue. Whereas in the South African debate corporations owned the factories in South Africa, today many corporations do not own the factories in which their products are made. For example, Walt Disney World makes a decision as to where to source their T-shirts based on the best price they can get. At least historically, it has not viewed it as its role to care about the circumstances that made those T-shirts available at that price. Shareholder advocacy has advanced issues ranging from sweatshops to the environment and even chief executive officer pay.
Community Development Investments
For certain segments of society, capitalism has not brought prosperity. Community development investments have emerged as a means of addressing the needs of these constituencies. These investments are generally in the form of loans to, or deposits at, community-based financial institutions. Funds serving the responsible investor support community development financial institutions. Community economic development has a relatively concrete and immediate impact. Low-income housing is built, a business providing entry-level jobs and healthcare benefits is supported, a cooperatively owned endeavor finances its expansion. Community development investments are particularly interesting as we move into a more complex global environment.
Conclusion
With the revenues of global corporations running at levels far in excess of those enjoyed by most of the planet’s nations, it has now become impossible to address issues of environmental sustainability and basic human dignity unless corporations enthusiastically endorse these goals. While corporate management teams may be made up of individuals who are personally committed to a better tomorrow, the bifurcation of finance and society has led to a belief on the part of management teams that they are going to be held accountable only for generating high current earnings and that practically any cost for these earnings is acceptable. Socially responsible investors will impact this dangerous perception significantly. By becoming an important ownership base with a new message, we will allow management teams to do what no doubt they would prefer to do: provide solid returns within the standards of improving the future for all. The underlying goal of socially responsible investors is to assist in the creation of a just and sustainable economic system. While we do not argue that such a system is going to come about solely through the efforts of investors, we feel it would be highly unlikely to come about without investors taking a prominent and socially responsible role.