Friday, June 13, 2008

SRI: A new requirement for fiduciaries?

Ten years from now, a fiduciary may feel bound to consider the tenets of socially responsible investing (SRI), predicted Peter Kinder, president, KLD Research & Analytics.

That may sound crazy. But back in the early 1800s, it seemed crazy for prudent investors to use common stocks in pension funds, noted Kinder.

Kinder co-presented with Cheryl Smith, executive vice president of Trillium Asset Management, on "The History and Future of Socially Responsible Investing" to the Boston Security Analysts Society on June 5.

Kinder qualified his remarks later, writing:

What I intended to say is that fiduciaries may have the duty to consider much the same factors as Social Investors have.

It is highly unlikely that fiduciaries will have to consider them as values (as social investors traditionally have). Rather, they will apply them among the data they bring to bear in an investment decision. This distinction also implies that fiduciaries may decide that other considerations outweigh the ESG criteria.

Put differently, analysis of social criteria by fiduciaries will not have the status of, say, fundamental analysis. Rather, it will take its place alongside cash flow analysis under the tenets of an analytical approach.


Smith noted that SRI's role is growing in investments by foundations, pension funds, 401(k) plans and individuals. About 6%-7% of high net worth investors use SRI methods. That number rises to 9%-10% for the ultra high net worth. She suggested that the trend toward SRI will trickle down to the less affluent.

The time will come when not evaluating a company in terms of SRI's criteria will be as inconceivable as not checking the company's balance sheet, said Smith.




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Susan B. Weiner, CFA
Investment Writing
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