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BP Spill: Ripples

Investing in oil: Socially responsible?

Adriene Hill Aug 10, 2010
BP Spill: Ripples

Investing in oil: Socially responsible?

Adriene Hill Aug 10, 2010


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.

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