Socially responsible investing (SRI) is not a new idea. It can be traced back to 1758 Quaker Philadelphia Yearly Meeting, where slave trade was banned, according to wikipedia. (Philadelphia was known as “Quaker City” and Quaker became Penn’s mascot later)
Some commonly recognized issues are summarized under environmental, social and corporate governance (ESG).
In the current setting, a case in point is Starbucks’ cups and straws evolution. On its way to become “green”, some important episodes include Starbucks’ plan to develop fully recyclable cups in 2008, shareholders’ proposal on its annual proxy statement since 2010, etc… This year, Starbucks announced its plan to eliminate plastic straws globally by 2020 and a $10m commitment to develop recyclable, compostable cup solution.
Another very interesting case comes from Apple, and an article I read earlier this year on Harvard Business Review named “Why an Activist Hedge Fund Cares Whether Apple’s Devices Are Bad for Kids” –
On January 6, 2017, JANA Partners, a New York–based activist hedge fund, and the California State Teachers’ Retirement System (CalSTRS) sent a letter to Apple’s board of directors that may change the future of activist investing. Citing a substantial body of expert research, the letter stated, “We believe there is a clear need for Apple to offer parents more choices and tools to help them ensure that young consumers are using your products in an optimal manner.”
Many would think of SRI as a concept – like a concept car that is not viable – at least for now, or even as a negative factor dragging investment returns (e.g. Starbucks need to hike R&D spend and might end up with more expensive cups and straws; Young consumers spending less time on Apple will negatively impact some metrics and might result in using other technology products). However, I believe SRI will show its real benefits – in at least two cases I shall present below.
- Some real benefits in the long run.
- For example, less addictive Apple products might attract better educated consumers/families, who might exhibit higher purchasing power now and in the future (when they grow up). Some real value creation is out there.
- Another possible situation: for non-SRI, eventually, some extreme cases come up, which will lead to government/investigator intervention and might lead to new regulations that hurt the company. So, by SRI, we are lowering those risks.
- No tangible benefits developed.
- But, if SRI becomes a concept that everyone knows and agrees upon, some opportunities will be artificially created. For example, some SRI-premium or discount are definitely coming.
- If most people believe something is true, it is true (for those phenomena that are not the subject matter of natural science; investing seems to be one of them).
- Attacking non-ESG compliant investments might be a another short strategy; and a new form of long/short investment might be created.