Student Spotlight: SRI Funds – they’re profitable, they’re popular, but are they really socially responsible?

John Mundaden, an Accounting major and Catholic Social Tradition minor who graduated from Notre Dame in May, wrote this blog post as a student in the spring term’s social entrepreneurship course.  In view of Irish Impact’s anouncement about incorporating impact investing into next fall’s conference, we thought this was a good way to begin the conversation. A native of Portland, Oregon, John also wrote a business plan “harnessing the City of Roses’ affinity for coffee, food trucks and social change as a mechanism of providing permanent housing and employment to individuals experiencing homelessness.”

mundaden_john_headshotSRI Funds have increased in popularity as investors look to invest in organizations that yield solid returns and effect positive social change. However, the difficulty of measuring impact and the subjectivity in determining what qualifies an organization as socially responsible leaves questions as to which stocks should be pursued by these dual bottom line funds.

In 1982, Joan Bavaria founded Trillium Asset Management in Boston, MA with the hopes of creating an investment firm that could meet her clients’ wishes for sustainable and responsible investing. Touted as the first group focusing on Socially Responsible Investment (SRI), the firm now manages $1.4 billion assets, a small slice of the $2.7 trillion in SRI in the United States.[1] Socially Responsible Investment involves investing in companies and organizations based on the nature of the business, its operations, and its product offerings. This can be done both by avoiding businesses that are involved in detrimental social activities and financing those that are engaged in such areas as social justice, environmental sustainability, and clean technology.[2] Initially, this primarily meant that SRI funds did not invest in companies involved in gambling, alcohol, and cigarettes. Yet as research and investigation has improved transparency, these funds have raised the bar to include positive working conditions, environmentally sustainable practices, and good social policy.

A tension now exists over how much social responsibility is necessary for a company to qualify for these funds, and companies like Apple exemplify this dilemma as funds attempt to balance the need for high-returns with social responsibility.

Apple has come under fire for sweatshop-like working conditions in its manufacturing and questionable tax avoidance policies. An investigation by CNN in 2012 interviewed a worker in China who complained of overworked and undercompensated employees.[3] In fact, a joint paper by faculty at UC Irvine, UC Berkley, and Syracuse University estimated that less than $10 is paid to direct labor for every iPhone or iPad the company sells.[4] Additionally, Apple’s avoidance of corporate taxes by stockpiling cash reserves and earnings in low-taxed jurisdictions like Ireland have left many wondering about the ethics and effects of such avoidance. The Senate Permanent Investigations Subcommittee’s report alleges that Apple reduces its tax liability in US by over $10 billion per year through its avoidance scheme that involves assigning costs and revenues to tax havens.[5]

Why does this matter? The great tragedy would be investors unintentionally supporting companies that they are intent on avoiding. For example, Calvert Investments—the largest SRI-focused firm—and Domini Social Equity have had two of the most profitable SRI funds and invest 4.6% and 5.5% of their assets, respectively, in Apple stock. Yet Apple is excluded from investment by another successful fund, the TIAA-CREF Social Choice Equity Fund. It is vital that the customers of SRI funds do their due diligence in ensuring that these funds are not sacrificing social responsibility for returns. While these fund managers presumably have the expertise to yield positive returns, the difficulty of quantifying social impact makes decisions on social responsibility extremely subjective. The choice to value both profits and social responsibility is an admirable one, and it is vital that we honor our choices through awareness, even vigilence, of what funds are investing in.

Looking for an SRI Fund that meets your needs? It’s more art than science:

  • Talk to fund managers to see what qualifies the companies it invests in as socially responsible. These managers are searching for investors with similar desires for a dual bottom line, and are willing to offer a view of how decisions are made.
  • Very few companies are perfect; decide what you value and what you don’t. Maybe being an environmentally-friendly, fair-trade organization is more important to you than being local. Make decisions and be sure to stick with them.
  • Most well-regarded SRI Funds provide a listing of approved stocks that they will invest in. Research the most invested stocks and examine their past social performance.

[1] Trillium Asset Management. “Joan Bavaria”. Retrieved from <;

[2] “Socially Responsible Investment – SRI”. Investopedia. Retrieved from <;

[3] Zhang, Chi-Chi. “Apple manufacturing plant workers complain of long hours, militant culture”. CNN (2012). Retrieved from <;

[4] Kraemer, Kenneth L.; Linden, Greg; Dedrick, Jason. “Capturing Value in Global Networks: Apple’s iPad and iPhone”.  Paul Merage School of Business.

[5] McCain, John. “Offshore Profit Shifting and the U.S. Tax code – Part 2 (Apple Inc.)”. Senate Permanent Subcommittee on Investigations (2013).

Featured image by Feiticeira Rose, licensed under Creative Commons.

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