March 18, 2008

How Many Birds With One Stone? Socially Responsible Investments

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Stones are in limited supply, and, as always, we’re desperate for a bird or two. “What kind of return can I get on that toss?” thought the Cro-magnon man. Today, returns and happiness have been further defined, and to many they extend beyond the immediate satiating fill of a fallen crow. The same rules apply, but after having thoroughly sorted stones, stone throwers and birds, many are armed with money instead. Among other things, deepening social interactions appear to have broadened our options.
It is tempting to want to define the private and public spheres as perfectly separate, but this would be a misstep. One’s own best interest clearly coincides with the best interests of others, and at least, Pareto efficiency can hold true. In the business realm, investments are based upon a trust in the potential returns of collaboration. The question seems to be: How far can an investor safely reach beyond his or her own person into the larger community and into the future?
There are a growing number of successes on this golden rule frontier. A Wall Street Journal article reported that Bridges Community Ventures Ltd., a UK firm, has seen returns of 10% a year and is now aiming for 15%. Another UK firm, Catalyst Fund Management & Research Ltd., has itself slated away $50 million for socially slanted investments. In the global scheme, what have been termed “socially responsible” growth funds have been performing well, experiencing impressive average annual returns of 10.7% as compared to 10.4% among other growth funds.
Initiatives continue to emerge. Since 1996, for example, the New York City Investment Fund has supported over eighty projects that have generated larger social benefits for the city and its communities. They have raised more than $110 million for ventures that include job creation and the revitalization of depressed areas.
Among other stars in this scene, microfinance has been embraced under the socially responsible umbrella. More than that, it has grown in some cases to offer its own amount of support. Crédit Agricole, the largest retail-banking group in France, has recently teamed with Muhammad Yunus’s Grameen Bank to start a $76 million fund that will invest in developing economies. $176 million will even be lent to New Yorkers in the wake of the subprime-mortgage crisis.
In the years that come, it will be undoubtedly interesting to see how this trend evolves, and what it might mean for us as a society.