Socially Responsible Investing, sometimes known as SRI, just doesn’t make sense to me. On the most part I feel like it’s a scam perpetuated by the mutual fund industry which has come back to bite them in the ass.  The thing is I’m on the same page with most of the socially responsible funds.  I support a better environment, better labor practices, and a better world.  I’m left of center and proud of it. I also understand the moral desire to not want to profit from practices you disagree with.  I even think it makes sense to invest in GREEN companies because those values reflect forward thinking, a sign of good management.

However, the way socially responsible funds are pitched is that somehow by investing in socially responsible way is better for the environment, or supports better labor practices.  I just don’t see this.  Maybe during the IPO process, but once the shares of the company are in the secondary stock market my purchase or sale of shares does not affect the company. The only affect I have on the company is how I vote my shares.  For this reason fund like the Free Enterprise Action Fund which tries to promote profit for profit’s sake and spite the left wing movement by shareholder advocacy makes more sense.

Part of the reason, I’ve been thinking about this is the media blitz put on recently attacking Fidelity Investments.  If you live in Boston and take the T, you’ve seen the ads I’m sure that ask, “Are your riches filthy?” I’m pretty sure those ads are part of the campaign, but unconfirmed.  Hey I’m all for the pitch for awareness. I just find the attack on the investment company counterproductive and just as pointless as most SRI funds.  It’s not like the investments that Fidelity has made in PetroChina which works with the Sudan government was the source funding that has allowed PetroChina to invest in Sudan.  Fidelity via its wide array of mutual funds has merely purchased shares from someone else in the investment world.

If we want to be socially responsible, and want to punish the bad companies, and reward good ones, the best way we can do so is by socially responsible consumerism.  Socially responsible investing does nothing but change who the winners and losers are the investment side, but not the actual profitability and therefore survivorship of any “bad” company.  If a company is unable to sell it’s products, it either has to change or go bankrupt.  If a company can’t sell its already issued stock (unless that stock is used to support its balance sheet via voodoo accounting i.e. Enron) it doesn’t matter. A low stock price is reflection of poor company performance, and not vice versa.