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March 11, 2003
Book Review: Socially Responsible Investment: A Global Revolution
by William Baue
A new book is generous in its history of socially responsible investing, but it shortchanges
readers with its definition of SRI and its coverage of SRI's globalization.
SocialFunds.com --
Socially Responsible Investment: A Global Revolution by Russell Sparkes lives up to
its title by encompassing the incredibly broad subject of socially responsible investment (SRI)
quite admirably. Mr. Sparkes, who participated in the development of SRI in the U.K. as a member
of the Methodist Church's Central Finance Board (CFB) and as a member of the U.K. Social Investment Forum (UKSIF), encapsulates the history of
SRI comprehensively.
 The most enlightening aspect of this history
is the series of "firsts" Mr. Sparkes documents.
The first example of shareowner
advocacy dates back to 1967 when the social justice group FIGHT attended the annual meeting at Eastman Kodak
(ticker: EK) to promote better treatment of black workers.
The first socially responsible
shareowner resolution, filed in 1969, questioned the morality of napalm and Agent Orange production
by Dow Chemical
(DOW).
The first "modern" SRI mutual fund, the Pax World Fund (PAXWX), was
established on August 8, 1971.
The first analysis of the public's concerns regarding
social responsibility was published in 1992. Chris Cowton, now a professor of accounting at the
Huddersfield Business School, published this multi-variance factor analysis that identified one
quarter of social investors as motivated by religious concerns and one quarter by political issues,
with some overlap between them. The remaining half did not fall into an identifiable category.
Mr. Sparkes identifies himself as one of the first people to link corporate governance
with SRI, which he did in his 1994 book, The Ethical Investor. (Mr. Sparkes explains that
the term "ethical investment" has been replaced by "SRI.") This link is now commonly acknowledged,
and many definitions of SRI include corporate governance as one of its pillars.
However,
the definition of SRI is where the book's usefulness falters some. In attempting to update his
definition of SRI from his earlier text, which Mr. Sparkes admits had its limitations, he imposes
new limitations on the term.
In the U.S., community investment is considered one of the
pillars of SRI.
"I beg to differ," writes Mr. Sparkes. "I would argue that such
activity should be clearly distinguished from SRI for two reasons."
"Firstly, one of the
key attributes of socially responsible investment is to affect corporate behaviour by using the
power and influence of shareholders," Mr. Sparkes states. "This means that it must be centered
upon holding stocks and shares in companies, i.e. equities."
Indeed, Mr. Sparkes later
specifies equity portfolios as the vehicles for socially responsible investment. This distinction
leaves bond portfolios out of the definition. SRI investors and firms may be surprised to find out
that their bond investments may not qualify as socially responsible investments, according to Mr.
Sparkes's definition.
Mr. Sparkes's explanation for the exclusion of community investment
from his definition of SRI continues: "The second difference relates to financial returns. The
essence of [community investment] is that savers deliberately accept below-market returns in order
to help others, which is not the intention in SRI."
In response to his perception of an
overemphasis on social and environmental returns in many definitions of SRI, Mr. Sparkes's revised
definition of SRI gives equal weight to financial returns. However, his inclusion of equity
investment in his new definition and the exclusion of community investment and bond investment
assumes that equities generate better financial returns.
Readers might wonder where Mr.
Sparkes has been for the last three years, when community investments and bonds have generally been
generating positive financial returns, while many equity investments have been generating negative
financial returns.
Instead of trying to compress his definition of socially responsible
investment, Mr. Sparkes might have been better advised to devise a broader definition that would
encompass SRI practice throughout the world.
Finally, the book lives up to its subtitle in
the strictest sense in that Mr. Sparkes does discuss the globalization of SRI, though he
saves this discussion until the third and final section of the book. Even then, he remains
preoccupied with SRI in the U.S. and the U.K. and gives short shrift to the SRI movements in
Canada, Australia, Asia, and Scandinavia. Readers buying this book on the promise of its subtitle
should be aware of these limitations.
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SRI World Group, Inc. All Rights Reserved.
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