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Investing in oil: Socially responsible?

Vessels work at the site of the Deepwater Horizon accident as viewed from inside a Coast Guard flight over the site off the shore of Louisiana.

TEXT OF INTERVIEW

Kai Ryssdal: People make investments for all kinds of different reasons. College, retirement, maybe there's something about the company you just like, whatever it is. Since the oil leak in the Gulf, one of the things playing into how and why some people invest is the notion of social responsibility. People putting their money in companies or mutual funds that support specific agendas -- some are religious, others environmental, there are a whole bunch. But investors looking to do good with their money have to pay close attention what those funds themselves invest in.

Marketplace's Adriene Hill has been looking into socially responsible investing and how it has changed since the spill. Hey, Adrienne.

Adriene Hill: Hi, Kai.

Ryssdal: So, nothing like an oil spill to get people thinkin' about the environment, I guess.

Hill: Yeah, that's right. But it's not just pelicans and marshes they're thinking about. Investors have found out the hard way there's a big downside to environmental risk. BP's stock price lost about a third of its value. The company's liability is still up in the air. So people are thinking more about these business practices that could leave them vulnerable. According to a report by Edward Jones, 65 percent of investors are now hesitant to go near oil companies.

Ryssdal: So are socially responsible investments a good way to avoid companies like BP?

Hill: No, not necessarily.

Ryssdal: Oh man, c'mon.

Hill: Otherwise, there'd be no story, right? One case in point, the Dow Jones Sustainability Index, which is a benchmark for some socially responsible investment funds had BP in its index, up until the spill. Later, they threw the company out, citing economic effects in the long-term damage to BP's reputation. But the funds based on the Dow Jones Index are far from the only ones invested in oil and gas.

Ryssdal: Well, let me ask you about that because it sort of seems a little oxymoronic, right? Socially responsible investment in oil and gas companies -- help me understand that.

Hill: Well, socially responsible investments cover a broad swath of social consciousness, in part. It's not just environmental consciousness, but also, you know, these companies want to make money. I called up a socially responsible investment expert named Cary Krosinsky. He teaches about sustainability investing and has written about SRIs. This is how he explained it.

Cary Krosinsky: The social responsible fund doesn't wanna leave possible returns on the table. So, if they are concerned that not investing in oil and gas will have them underperform, they felt the need to invest in certain sectors like oil and gas.

Hill: So basically, they want to make money.

Ryssdal: The whole "leaving money on the table" thing is an interesting insight.

Hill: Yeah. So lots of times, these funds were looking for sort of "best of industry" or "best of class" type investments. BP checked all the right boxes, they had the fancy logo and they started showing up some of these lists.

Ryssdal: So what is a socially-minded investor to do then? I mean, if BP makes the list, what do you do?

Hill: You look beyond the title "socially responsible." You do your homework and you actually spend the time to do it. You know, Morningstar sent me a list of the top 10 SRIs by size. So the top 10 largest socially responsible investment funds. And I have been digging through their holdings, looking at each of their top 25 holdings. A ton of them have oil and gas companies, offshore drilling companies. They're all over the place in these things. So you've really got to drill down and figure it out for yourself.

Ryssdal: All right, and you can do that actually, if you want to. We've got that list that Adriene mentioned and a whole bunch of other stuff as well. Adriene Hill, from our Sustainability staff. Adriene, thanks a lot.

Hill: Thank you.

About the author

Adriene Hill is a senior multimedia reporter for the Marketplace sustainability desk, with a focus on consumer issues and the individual relationship to sustainability and the environment.
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Investing in socailly responsible funds is a great idea - on paper - but who can untimately define socially responsible. Some energy companies do try to be such - and are they socially irresponsible just because they are energy companies, or neuclear companies et al. I think not. Digging though the holding of a mutual fund is a bit like looking for a neddle in a hay stack. A much better approach might be to invest in solid performing funds and donate a portion of the return directly to your favourite charity making an immediate and measurable difference for good.

I thought we were supposed to buy into index funds and not think about them. Now we're supposed to dig into funds' holdings and micromanage 'experts' who 'know the market better than we do'?

Why not skip the middlemen and just buy into individual stocks? If you care about some cause more than pure profit, nobody's going to represent your interests properly, so don't pay annual fees for the privilege of buying into 'disreputable' companies.

Since when are oil and gas companies by their very nature not environmentally responsible? Alternative energy sources can tend to be arguably more damaging to the environment than oil. And "socially responsible" used to be more concerned with things like not sending money to oppresive African dictatorships than with the environment, anyway.

I found your article of Aug 10 that discussed socially conscious mutual funds holdings in the oil and gas industry to be naïve, inflammatory, and absurd.
As a long time, non-executive employee of an oil and gas company, I can attest to the efforts my company goes through to eliminate pollution releases, workplace injuries, and unethical behavior, to reduce our direct environmental impact, and to promote an inclusive workforce, all the while striving to bring a competitive rate of return for our public shareholders. We make it easier for them by providing public information that describes our stewardship practices in these areas.
Shouldn’t the point of socially conscious investing be to reward those enterprises that incorporate these values into their strategies, procedures, and practices and to avoid those enterprises that ignore them? Yet your article portrayed this entire industry as an investing pariah. One could just as easily condemn investing in the entire banking industry for causing the financial meltdown, big pharma and hospitals for the health care crisis, fast food and the ag industries for causing obesity, and the entire news media for the lack of civil discourse in this country.
If you want to invest in alternative energy, say, or avoid gaming or tobacco, fine. Select a diversified portfolio of target industry funds that suits your conscience. Just remember that all capitalist enterprises consume labor and materials in order to produce wanted goods or services at a sustainable return on investment. Investing in anything less is considered making a donation (or taxes!).

As I'm sure you'll be hearing from many familiar with socially responsible investing, your report completely missed the strategy embraced by many sri funds - to hold sufficient stock in companies, including oil and gas, to pressure for change from within through sponsoring shareholder resolutions and other measures.

An opportunity lost to get the story straight, which to be honest is quite surprising coming from a show dedicated to following the market.

thank you,

Jason Gehrig

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