|
April 25, 2005
Study Argues Less is More in Socially Responsible Investment Research
by William Baue
The proposed method may correlate environmental sustainability to financial performance well, but
the radical reductionism seems ill-suited to a field that thrives on diversity of approaches.
SocialFunds.com --
In his latest polemic, provocateur Christoph Butz of Geneva-based private bank Pictet & Cie takes aim at what he considers the bloating of
socially responsible investment (SRI) research, and recommends a Slim-Fast diet. One result of the
increasing number of criteria SRI researcher firms use to assess corporate sustainability is
"questionnaire fatigue," which exhausts companies' actual and metaphorical resources, Mr. Butz
points out. His beef centers not on this problem, though, but on the contention that increasing
quantities of data may lead to information overload and decreasing quality of analysis. Trim the
fat for a leaner cut, he suggests.
"We would like to make the case for taking a break
and focus on what is really important and relevant to sustainable development," states Mr. Butz for
the Pictet sustainable investment team. "We will make the case for retaining only a few relevant
indicators and suggest that we get rid of all the 'dead weight' that has accumulated over the years
and has paradoxically become a major obstacle to real progress in sustainable investment."
"We are fully aware that such a 'reductionist' view of environmental sustainability will
immediately draw a lot of criticism," he continues in the paper, entitled Less Can Be More…A New
Approach to SRI Research.
The paper is broken into two sections: the first defines the
problem as Mr.Butz sees it, the second proposes a solution. One component of the problem: SRI
research firms need to differentiate themselves in a competitive marketplace, hence the
proliferation of indicators. However, each new criterion gains its significance by stripping the
significance from existing criteria, thereby spreading the relevance of the overall assessment
thinner and thinner. Furthermore, many criteria address the "vague concept" of corporate
responsibility instead of honing in on the more scientifically measurable goal of sustainable
development: "being nice" to employees is not necessarily going to save the planet, Mr. Butz
suggests.
The solution: focus on "key impact factors." Mr. Butz posits two such
factors for measuring environmental sustainability (fleet fuel efficiency in the automobile sector
and fleet age in the airline sector) and one for measuring social sustainability (job creation).
At this point, the philosophical side of Mr. Butz's argument takes a back seat to the
"quant" side, as the Pictet team devises sophisticated quantification strategies, looking at 12 car
manufacturers, 38 airline companies, and about 1000 cross-sector companies. The stratagems compare
financial performance against various measures of sustainability performance. Higher car fleet
fuel efficiency correlates with slight financial underperformance, while increased job creation
correlates loosely to better financial performance, though not statistically significantly.
The approach Mr.Butz advocates seems to ignore the fact that investors have a variety of
reasons and goals regarding sustainability investing and SRI. Take, for example, faith-based
investors. Some spurn companies that produce birth control, while some conduct shareowner action
encouraging companies to support condom distribution in developing nations to curb the spread of
HIV/AIDS. SRI research spans across this spectrum. While Mr. Butz anticipates criticism, he does
not take into account how his radical reductionism contravenes the diversity of SRI.
©
SRI World Group, Inc. All Rights Reserved.
Top
| 
