Quick, tell me the name of the investment philosophy that factors in externalities – such as air and water pollution, or social policy – into its securities’ assessments. What’s your answer? Did you say:

• Corporate Social Responsibility (CSR)?
• Socially Responsible Investment (SRI)?
• Impact Investing (II)?
• Environmental, Social, and Governance (ESG) investing?

Chances are, you named one of the above, didn’t you? If you look at the preceding list we have an alphabet soup of possibilities: CSR, SRI, II, and ESG. Importantly, are there meaningful distinctions between these approaches, that justify separate definitions, and more importantly, entirely different communities of support? Let’s check in with the formal definitions from Investopedia for each of these different investment approaches to see if there are meaningful distinctions.

Corporate Social Responsibility (CSR)

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable — to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society including economic, social, and environmental.

Socially Responsible Investment (SRI)

An investment that is considered socially responsible because of the nature of the business the company conducts. Common themes for socially responsible investments include avoiding investment in companies that produce or sell addictive substances (like alcohol, gambling and tobacco) and seeking out companies engaged in social justice, environmental sustainability and alternative energy/clean technology efforts.

Impact Investing (II)

Impact investing is investing that aims to generate specific beneficial social or environmental effects in addition to financial gain. Impact investing is a subset of socially responsible investing (SRI), but while the definition of socially responsible investing encompasses avoidance of harm, impact investing actively seeks to make a positive impact by investing, for example, in non-profits that benefit the community or in clean technology enterprises.

Environmental, Social, and Governance (ESG)

Environmental, Social and Governance (ESG) Criteria is a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria look at how a company performs as a steward of the natural environment. Social criteria examine how a company manages relationships with its employees, suppliers, customers and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.

I am actually cutting short the alphabet soup, because I am not going to include a discussion of other similar named philosophies, such as stakeholder capitalism, and conscious capitalism, among others.

My point in all of this? I think you would agree with me that there is tremendous overlap among these different investment philosophies. Yet, they all have different names to describe them and communities to passionately defend them. I know that their individual and ardent proponents believe that there are significant differences among those competing in this space, regardless of what we call it.

But, to me this is very similar to different branches of Protestantism swearing that there are meaningful and distinct differences between their practice of Christianity. Unless you find yourself in the midst of one of these communities, do you really know the difference between a Methodist, a Pentecostal, a Calvinist, a Baptist, a Southern Baptist, and so on?

Let’s face it, if you care about the environment, and investing with a nod toward social policy, then doesn’t it make sense to drop the nomenclature fight, have a congress among competing nomenclatures, and agree on a single standard descriptor?

To me this as many advantages, for example:

• Ending the confusion among the investing public as to what different, but very similar standards, actually have that is distinct.
• A pooling of time, energy, and resources to move the needle to improve both environmental and social policy.
• Focusing on what is really important – environmental and social policy – and not what isn’t: ticky-tacky fights over preferred descriptors.

If you take seriously the October 2018 Intergovernmental Panel on Climate Change report stating that humanity has until 2030 to make progress toward climate change before its too late, then it is in your interest to insist that the Alphabet Soup communities STOP the bickering, and get on with the work.

Think this isn’t a real issue? Sadly, I was an attendee at an environment/social policy meets investing event several years ago and was stunned that many of the presenters actually went out of their way to denigrate the work of others in the Alphabet Soup. Frankly, we just do not have time for such nonsense, and it is time to have the necessary meeting of the minds, and the melding of the resources.

Jason A. Voss, CFA – Your Next Excellent Hire

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