Giving SRI New Meaning

Excerpt from "Socially Responsible Investing": An Evolving Concept in a Changing World

By Peter D. Kinder

Editor's Note: On September 14, 2005 KLD released Peter Kinder's most recent paper, "Socially Responsible Investing": An Evolving Concept in a Changing World. Below appears a brief excerpt from the paper's introduction. We hope that you'll be enticed to read more: http://www.kld.com/resources/papers/SRIevolving050901.pdf.

"Socially responsible investing": few terms are no unloved by the people who rely on them. Still no one has devised a better term. And, it has locked itself into the usage of the public, the press and the financial services industry. We are probably going to have to live with it.

Living with a term and giving it meaning are very different things. Beyond its awkwardness, "socially responsible investing" (SRI) is unloved because, as I show in this paper, it has come to harbor apparently differing views of what SRI is and is about. My analysis of these views centers on three fundamental questions:

• What meanings attach to "socially responsible investing" today?
• Who are SRI's constituents and what are (and will be) their objectives and methodologies?
• How do financial and social performance relate to and interact with its constituents' objectives?

The answers - or more accurately, the shape of emerging answers - to these questions I suggest in this paper.

I begin by describing how SRI came to mean different things to different investors. I then classify the approaches termed SRI and analyze the sources of the dissonance among the approaches in terms of their social, legal and political characteristics. I conclude that the differences, while real, should not prevent SRI's constituents from making common cause on issues of corporate accountability and - in its broadest sense - corporate governing.

Woven into the fabric of this paper are strands from the on-going debate over "short-termism", the mentality common both in investing and amongst publicly traded companies that focus on quarterly or annual financial returns to the exclusion of medium- and long-term benefits. I end the paper with some observations on "performance" and SRI.

My positions on the issues this paper discusses are not unknown and not hidden here. However, my objectives here do not include scoring debating points. Rather, I have focused on definitions, distinctions and descriptions. My hope is that they will clarify SRI's workings and offer a basis for reaching common understandings.