BP and Socially Responsible Investing

BP and socially responsible investing

By Edwin Palsma; The Afro News Langley : The oil spill in the Gulf of Mexico has a lot of people thinking about their investments.

First, they are wondering if they own any shares of BP through the mutual funds or indices in their investment portfolios. The oil spill has lopped more than $30 billion off BP’s market cap as investors worry about the total bill for cleanup.

Second, people are wondering if there is any way to influence companies that have the potential to make such a negative impact on our world, whether environmentally or socially.

At first blush, SRI — socially responsible investing to encourage progressive social change — seems to have very little sway or influence in how companies such as BP make decisions. In a world seemingly fixated on making money, is it possible that having a social conscience can make a difference? Looking back, the answer is yes; there have been times during which socially conscious investors have successfully initiated change.

Back in 2001 and 2002, a few shareholder resolutions filed by SRI companies, such as Ethical Funds, helped encourage BP and other oil companies to pull out of a new oil field in the pristine wilderness of Alaska’s Arctic National Wildlife Refuge. This was a small victory at the time. Subsequently, many SRI investment companies divested themselves of their shares in BP in favour of other oil and gas companies they believed were better investments, and which were being more proactive in addressing their environmental impact. Better out than in, given today’s sad situation.

But did SRI investors really win in all this? While not owning shares in BP at a time when their market cap is falling doesn’t hurt one’s investment returns, we are still staring at an enormous environmental problem that will impact the Gulf of Mexico for years to come. There are very few winners in situations like this.

So you may be asking yourself: I’m all for SRI, but how much is it going to cost me in returns? The prevailing myth is that SRI doesn’t pay off like regular investing…that investing with a conscience exacts a price.

Evidence indicates otherwise. Socially responsible investing has been around for quite a number of years, and people think of it mainly as along the lines of not investing in cigarette companies and munitions. Due to the oil sands, investing in oil companies is generally considered off-limits. All these industries are highly profitable, and crossing them off the list can negatively affect returns in an SRI portfolio. Right…? Wrong.

One of the longest, consistent records of SRI is the FTSE KLD 400 Social Index. Begun in April 1990, it has an annual performance of +9.7% — significantly more than the S&P500’s annual return of +8.8%. The record in Canada is shorter but no less interesting. Since January 1, 2000, the Jantzi Social Index has returned 5.92%, edging out the S&P/TSX60’s annual returns of 5.79%.

Could it be true that companies with better environmental policies and more effective employee safety programs have more efficient workforces and are less likely to be the subject of negative press and lawsuits, thereby generating higher returns for their shareholders? Whatever the future financial returns, many SRI investors appreciate that they are also able to get a good social return on their money. In effect, they have a triple bottom line when it comes to their investments: financial, environmental and social returns weigh into their decisions.

If one is looking for a more proactive approach to investing responsibly, there are more than a few SRI mutual fund families that can deliver decent returns while making a positive difference. You can also talk to your financial advisor about picking what’s called “best of sector”; that is, investing in specific companies that are the most progressive in any particular industry — such as petroleum.

While no investing process is perfect, having the peace of mind that one is making a difference, and not just standing idly by, can be compelling. After all, we all want to leave the world in better shape than when we arrived. SRI is a way to start making a small difference with your investments.

About the author

Edwin Palsma is a Langley, BC-based Financial Advisor with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James. This article is for information only. Raymond James Ltd., member of Canadian Investor Protection Fund.