March 2005 | Letters to the Editor
Heading in the Wrong Direction
Paul Hawken’s welcome article on socially responsible (SR) mutual funds (“Is Your Money Where Your Heart Is?” CG Oct. 2004) has stimulated a debate that seems headed in the wrong direction. SR mutual fund defenders respond to Hawken by arguing that the SR investment industry is doing the best it can within the limitations of the existing system. Missing from this discussion is an examination of equity investing as an effective model for promoting socially responsible business.
If we seek to identify a just approach to funding worthy enterprises, we should look to fixed-income investments. Loans, notes, and bonds allow investors to know at the outset what return to expect from the investment, while borrowers understand what is required of them to fulfill their obligation. The advantage of debt-financing for socially responsible business owners is that they maintain control over organizational values and operational approach. Socially responsible investors could exercise an activist influence by attaching conditions under which the loan is granted. These conditions, or covenants, could stipulate matters central to socially-responsible business practice.
Unlike mutual fund investments, few opportunities exist to invest in loans or bonds that support social enterprises. Why? Underwriting loans is more comprehensive and costly than underwriting stock offerings. To cover these greater costs, global finance intermediaries typically engage in very large transactions (in the $1 billion range) that generate the greatest earnings per transaction. Social enterprises requiring financing from tens of thousands to several million dollars are too small to participate.
Investment opportunities in SR fixed-income vehicles are limited currently by the lack of social finance infrastructure to enable investors to rate, transfer, and help to keep their investments liquid, and which could help to funnel investor dollars to social enterprises too small to participate in the global finance marketplace. Work is already starting to create such structures.
The broad benefits of SRI will be achieved, not by promoting the particular instruments of one aspect of the investment market, but by the broad education of socially responsible investors. The financial marketplace is dense and complex. Truly responsible actions will result when we understand exactly what our money does when it’s not stored in our mattresses. Thanks to Dragonfly for creating this forum for education and discussion.
— Rupert Ayton and Stephanie L. Sarver, Founders Center for the Development of Social Finance (CDSF), San Mateo, CA
The CDSF is a nonprofit organization fiscally sponsored by the Rudolf Steiner Foundation (RSF). Mr. Ayton was the chief financial officer of RSF, which also is a supporter of Dragonfly Media. CDSF is working to create a social finance infrastructure to increase funding to social enterprises. For the full text of this response and the ongoing SRI debate, visit: cemagazines.com
Recommend this page to a friend
Top Ten pages recommended to friends:
