Those seeking information about SRI* will want to read this recent article by George R. Gay and Johann A. Klaasen from the Journal of Deferred Compensation–“Retirement Investment, Fiduciary Obligations, and Socially Responsible Investing.” Excerpt:
Whether motivated by the recent corporate scandals, by a desire not to profit from alcohol and tobacco, or by a growing concern for environmental sustainability, more plan participants are expressing a desire for a coherent system of selecting investments based on criteria beyond conventional analysis, with a focus on societal goals beyond investment returns. But in what circumstances, and to what extent, might such an investment strategy be permissible? May those charged with making decisions about retirement investments reasonably choose SRI?
The article goes on to conclude that “[c]onsiderations of fiduciary duty do not prevent retirement plan trustees from implementing basic SRI strategies in the plans for which they are responsible.”
Some additional resources pertaining to the legal implications of SRI:
- ERISA Opinion Letter 98-04A (May 28, 1998)
- Interpretive Bulletin 94-1, 29 C.F.R. section 2509.94-1
- Board of Trustees of Employees” Retirement System of City of Baltimore v. Mayor and City Council of Baltimore City, 562 A.2d 720, 317 Md. 72 (Md. 09/01/1989) (A case which is frequently cited in most articles on SRI, but which could not be found anywhere on the internet, so you can access it now from this website.)
- But see this recent DOL letter to the AFL-CIO (discussed in a previous post here) setting forth the DOL’s views regarding the ERISA violations that could occur if plan fiduciaries are involved in expending “plan assets to inform participants about the current public debate on Social Security” as well as the “hiring and firing of [plan] service providers based upon their opinions on Social Security reform.” DOL’s bottom line in that letter was that a “fiduciary may never increase a plan’s expenses, sacrifice the security of promised benefits, or reduce the return on plan assets, in order to promote its views on Social Security or any other broad policy issue.”
- See also The KLD Resource Page and this 2002 article from the Journal of Financial Planning–“Socially Responsible Investing: An Imperfect World for Planners and Clients” which lists resources.
(*Definitions of SRI or “Socially Responsible Investing”:
The article–“Retirement Investment, Fiduciary Obligations, and Socially Responsible Investing“–defines SRI as “investing in companies that meet certain baseline standards of social and environmental responsibility; actively engaging those companies to become better, more responsible corporate citizens; and dedicating a portion of assets to community economic development” and “the process of integrating values, societal concerns and/or institutional mission into investment decision-making.”
However, the article–“Socially Responsible Investing: An Imperfect World for Planners and Clients“–offers this comment regarding defining SRI:
Socially responsible investing—or more politically correct these days, socially conscious investing—started out as a protest in the early 1980s primarily against investing in South Africa during apartheid. Today, SRI has evolved into many permutations that can include not only the avoidance of the traditional “sin” stocks of gambling, pornography and alcohol, but tobacco, companies with bad records on employee relations or the environment, nuclear weapons, defense, and a variety of faith-based issues such as abortion or anti-family entertainment. Generally, it’s what people don’t want to invest in, versus what they do, though as Leonard’s client who wanted only women-led companies illustrates, that constraint can eliminate nearly everything.Perhaps the most succinct, yet comprehensive, definition we heard came from Dennis Carpenter, CFP, whose Grapevine, Texas, planning firm of International Wealth Management specializes in biblically based investing: “Basically, it means making certain that your investment dollars and your beliefs are in concert with one another.
“Mission-based investing” is also a term used interchangeably by the industry, and is defined in this paper–“Introduction to Mission-Based Investing“–as “the incorporation of an institution?s mission into its investment decision-making process.” The paper goes on to note that “[a]n institution?s mission is its purpose or calling which is often summarized in a mission statement” and that the “institution?s mission may serve as a guide in determining what, if any, non-financial objectives it may set for its portfolio.”)