This very worthy read, a September 2008 review of SRI Activity, notes that attention to predatory lending started in 1999: “Shareowner activists took note of this trend as early as 1999 after a keynote speech at SRI in the Rockies by Martin Eakes, founding CEO of Self-Help, a North-Carolina-based community development financial institution (CDFI.)”

April, 2004 – from a report issued by the Center for Responsible Lending on “A Review of Wells Fargo’s Subprime Lending”.

“One of the biggest drivers in Wells Fargo Bank’s steady income growth is its mortgage business, which contributes approximately one-third of the company’s earnings year after year. Des Moines-based Wells Fargo Home Mortgage (WFHM) is one of the nation’s largest mortgage originators and servicers. At the end of 2003, WFHM originations hit $470B and mortgage servicing reached a record $664B. Wells Fargo’s subprime mortgage lending totaled $16.5B in 2003. While this is modest volume compared to Wells Fargo’s prime mortgage originations, the company now ranks # 8 among B&C lenders and generally has been doubling its subprime volume each year since 2000.”

This detailed 10 page report covers the merger of Wells Fargo and Norwest and many lending practices, ending with the sad conclusion “Lulled by favorable analyst reports, Wells Fargo investors may not realize they are subsidizing a predatory lender. In addition, limited regulatory oversight and loopholes in regulations have enabled Wells Fargo Financial to hide predatory practices from federal regulators. Sadly, the people who see these problems most clearly are the unit’s customers, who too often face the loss of their home or financial ruin as a result.”

April 14, 2005 Responsible Wealth issues a press release:

On April 26, at the company’s headquarters in San Francisco, Wells Fargo shareholders will vote on a resolution that links CEO pay to the company’s progress on eliminating predatory lending practices, such as excessive fees, poor disclosure and interest rates that are higher than warranted by customers’ credit scores.
The resolution was filed by members of Responsible Wealth (RW) [with support of many other advocacy orgs], a network of affluent investors. [Who advocate for greater social opportunity, one of their top issues is preserving the estate tax!] … Since a similar resolution was put forth in 2004, Wells Fargo has met with representatives of Responsible Wealth and the Center for Responsible Lending (CRL) to discuss changes in their lending practices.
Nevertheless, the company has lagged behind other companies that have eliminated predatory practices. For instance, following a similar campaign by RW, CRL, and the Association of Community Organizations for Reform Now (ACORN), Citigroup agreed to cap fees, reduce prepayment penalties and ensure that all customers received rates appropriate to their credit history, regardless of which division of the company handles the loan application. “

Now isn’t that interesting… Citigroup. And how are they faring today?

August 31, 2005 – Wells Fargo Implements Borrower Protections, LA Times.

Wells Fargo announces a series of changed lending practices, including “include more clearly defining and limiting upfront fees, easing penalties for borrowers who refinance or pay off loans early, and eliminating mandatory arbitration of disputes”. ACORN made a grudging statement “glad that the company has finally acknowledged the damage that their practices have been causing and have agreed to change them.” However, they weren’t satisfied, and only a couple months later were out picketing Wells Fargo’s national headquarters contending that the company’s lending still discriminated against minorities: “Nationally, black Wells Fargo borrowers are nearly four times as likely to pay extraordinary loan rates as whites, according to information compiled by Responsible Wealth. Nearly 30 percent of blacks taking out first-year loans from the company pay high interest rates.”

The Minority Wealth Gap is a real issue, but the changes Wells Fargo made at the time apparently satisfied at least one investor; what’s really interesting to me as I do this research, is the discovery that around Q3 2005 is when Warren Buffet decided to buy in, according to this report: “Warren Buffett also revealed his holdings in Wells Fargo & Co. (WFC) today [Feb 4, 2006], after disclosing his holdings in H. R. Block (HRB) and Torchmark Corp. (TMK) in January. During the third quarter of 2005 Buffett kept his holdings in these companies confidential. As revealed by the amended filings of Berkshire Hathaway, Warren Buffett added his positions in Wells Fargo & Co. (WFC) by about 50%. Currently Berkshire holds 85 million shares of Wells Fargo. Wells Fargo is now the 4th largest equity holding of Berkshire Hathaway, behind Coca-Cola Co. (KO), American Express Co. (AXP) and Procter & Gamble Co. (PG).” The stock wasn’t particularly pounded and “the street” wasn’t really paying attention. I checked the stock price on Yahoo (NYSE:WFC) and it had increased mildly over 2005, fluctuating between a high of 31 and a low of 29.

By 2007, at least one traditional investment newsletter was raving about Wells Fargo. Dan Ferris, of Daily Wealth reports: “Of all the companies involved in the subprime space, the one that really leaps out at me is Wells Fargo (NYSE: WFC). Wells Fargo is without a doubt the highest-quality mortgage underwriter I’ve found in my research.” He concludes “were I in the market for a large-cap stock, I’d back up a U-Haul and fill it with Wells Fargo common stock.”

It so clearly needs to be said, so I’ll say it: Thanks SRI Community!

Later that weekend we climbed Beacon Rock, the 2nd largest freestanding rock in the world after The Rock of Gibraltar. Beacon Rock was introduced into European history by Lewis and Clark in 1805. Most of the park signage noted that Beacon Rock was purchased by Henry J. Biddle in 1915 for $1 from Charles Ladd on the condition it be protected. Biddle’s children eventually got the rock turned into a state park. According to The Lewis and Clark Columbia River Water Trail, by Keith G. Hay, Charles Ladd purchased Beacon Rock in 1904 from a Philadelphia banker and investor in the Northern Pacific Railroad, Jay Cooke. Hay does not report a purchase price; however it seems likely that it was more than $1. Charles Ladd’s wife Sara was an award winning amateur photographer, and I learn from an article about her in the Oregon Historical Quarterly (Glauber, Spring 2007) that Charles Ladd was a successful Portland banker and businessman.

Both of these stories are about situations where people have enough capital that they’ve moved beyond using it for productive value or speculative value and into purely using it for political value. Interestingly they both involve losing large sums of money, or at least being able to risk doing so. The first story is a financial negotiation where being the last financier standing gives one control over a situation which could ultimately make their money back. Charles Ladd made more of an outright donation: sacrificing the difference in prices paid in return for a guarantee of preservation – a move that also reaped large future rewards but for the public rather than for himself.

For me, the key common element here is to note how excess capital trumps multi-party decision-making. Certainly easy to applaud when it’s a triumph of righteousness, but as a general principle it leads away from democratic governance. Theoretically, this kind of power comes from commercial success, which could be a kind of endorsement for the right to wield it. Unfortunately I think this “economic permission for power” is difficult to sustain in a world where businesses operate at non-local scale so that it’s impossible for customers to understand the full impact of who they choose to give their business to, or hold those at the top accountable in a social way.

I’m preparing for a trip to Spain to visit Mondragon – a series of worker cooperatives that were started in 1956. Since then they have launched or converted over 100 separate businesses as cooperatives to do various kinds of manufacturing and distribution. I’m familiar with Mondragon because the cooperative structure is an opportunity to better align the interest of wage labor and ownership in larger organizations by making them the same, and Mondragon is an oft heralded and much-studied example. At some level they’re a fascinating open experiment in the global struggle between the rights of labor and the rights of management, and thus folks seem to like to periodically predict the death or triumph of their model as the Mondragon Experience (as they call it) copes with economic downturns, globalization and the creation of the EEC. I’ll likely be writing more about Mondragon, but I compare them to Rick and Shauna because part of their model has been to help workers launch new cooperatives by building up equity through labor and doing spin-offs.

William F. Whyte is a researcher from Cornell who has studied Mondragon since 1977. Whyte published an article in 1999 with updates about changes due to globalization. An interesting aspect of Mondragon is that they established their own credit union early on, and it has played a critical role in the growth of new businesses. I have read criticism that this bank was no longer supporting the cooperative system as well as perhaps it once did, that rather than investing in new cooperatives the bank now invests in private partnerships. According to Whyte, at this point nearly ¾ of the banks investments are in private companies outside the cooperative network. It was with some surprise that I read the system actually no longer forms new cooperatives:

“we talked to Jose Maria Ormaecbea, one of tbe five founders of Ulgor [the very first cooperative in 1956] and, as of 1990, still a key leader. As be saw it, the main reason worker cooperatives were becoming increasingly difficult to create was that technological changes were requiring far more investment than bad been necessary when the first production cooperatives were being formed in the 1950s and 1960s. In that early era, founding members of a cooperative worked for two years at bottom labor rates. What they saved by so doing was converted to capital accounts, meaning that money was loaned by members to the cooperative they were forming. That amount was then supplemented by a grant from the Basque regional government to support job creation. By 1990, the required investments could be financed only if workers put in four or five years at reduced pay—and even then, Ormaecbea said, shortfalls could occur. The MCC [leadership body of Mondragon] leaders reluctantly abandoned their program of creating cooperatives by that means.”
Industrial and Labor Relations Review, Vol. 52, No. 3 (April 1999) William F. Whyte

Economists all recognize that we’re in a period of increasing income and wealth inequality but they argue about whether or not it matters. I argue that it does –The gap between wage labor rates and the amount of capital required to launch a competitive business has widened, to the point where it may not be possible to be the next Rick and Shauna unless your social connections put you in the upper half of our hourglass economy and you have access to Friends and Family funders who can get you started. It means America is decreasingly the land of opportunity and increasingly a place where “who you know” outranks “what you know” or “how hard you work”. Because it’s a naturally reinforcing spiral, if this is not what we want America to be, we have to proactively address it.

This first section really got me thinking about land and capital. I really don’t believe in classic supply and demand and “fair” pricing – there’s just too much friction. The first concrete example I found prior to this book was apartment pricing – when the market is overbuilt, rents don’t go down in clean response to the market, because it turns out the rent pricing is built into the financing when the building is built. Instead, owners offer “concessions” like free services or discounted move in costs. With both land and capital, there’s not the same supplier pressure to negotiate as there is with a product that can lose value like technology, fashion, food or events, all of which have a time-value. People talk about the “time value of money” and certainly inflation creates some pressure, but once you have an excess of capital (or land) beyond that which you need to live, you have a negotiating power that can alter the market rather than merely participate in it. That’s what was happening on Manhattan in around 1800, that landowners who controlled vast stretches of usable land, sat on it while prices drove up on what land was available in the marketplace, and then parceled it out at high prices. I also see a dynamic of a dysfunctional market because of capital that doesn’t “need to work” in angel investing.

I got busy with school, but I picked the book back up again recently, and hit the phrase where she refers to the shift of land being allowed to circulate as capital. It seems like this is a key to gentrification – that government became funded by property taxes and thus property owners gained greater say in government, and then amenities like water, sewer & parks became funded via property taxes, so they would only be put in if a corresponding increase in property values justified their cost. The book talks about a period of park establishment, and how landowners in low-rent neighborhoods resisted creation of a park because it would have required taking some of their property, and they didn’t think they could raise rents enough to justify it. Where they could raise rents, the poor were left with nowhere to go.

It makes me think about Hernando De Soto and his book (The Mystery of Capital) on how lack of clear land titling prevents folks in Latin America from building fortunes because they can’t effectively use land as capital. He advocates for fixing that, and many people (both right & left) think he’s a genius. But it suddenly strikes me as the perfect example of how a few will gain significantly financially – those who establish clear titles and take control, at the expense of the current proprietors & residents (who will be recategorized as squatters or forced to pay new rents). I wonder if there’s a “homelessness” problem in Peru – one of the countries Hernando De Soto talks about. Contrast that lack of clear title and people setting up shops & homes where they can, with privatized public space like 2200 Westlake (not that I have a particular issue with them, but it was recently built and is close to me). I suppose there would be (and have been) homes and small businesses in odd lots in Seattle if we were not now doing regular shakedowns of this clearly titled property in the name of its owner “The Public”.

In the first paragraph where I quote from the book, there was one more point that I’ve been chewing on, and that is the point that property owners could keep renting proprietors from making the leap to being owners themselves by keeping rents sufficiently high. Sometimes there’s market pressure to compete on rents, but the overall goal to maximize return leads most property owners to effectively work together because keeping the property market tight benefits both eventual sellers and current landlords. So as long as there’s no pressure to make land be economically productive, very wealthy owners can continue to hoard it as a resource, benefiting property owners as a class at the expense of non-property owners as a class. My next thought, is that market pressure to compete comes from a hungry rising class, which is disappearing in our hourglass economy and thus making it easier for the wealthy segments to use capital as negotiating power and not need to compete.

A challenge for CDVC funds is finding enough opportunities to place capital when the pool of potential investments has been narrowed to explicitly avoid the kinds of deals that easily attract funds from traditional investors. The costs of finding these deals can be higher but is usually offset by partnering with a community development loan institution that can act as a screening/referring body and reduce the cost of due diligence.

The premise of working with lenders is that risk can be mitigated through relationship, and thus the CDVC firms can tolerate making investments where the winners don’t need to provide all the return from only 10% of the portfolio, because the potential for losing is reduced. Partnering with loan funds can also reduce costs through careful sharing of staff and office resources. This is necessary because the smaller size of community development VC funds (often 10 million or less) means lower potential for operating revenue – 3% on a $5 million fund is an annual revenue of 150,000, not much to pay staff or have an office. Like Venture Capital funds, these funds also take a percentage of profits at the back end, usually this is how fund principals are compensated in a traditional model, but they’re usually also wealthy capitalists who can afford to take payment on the back end. CDVC staff is more commonly salaried.

Leaning on the loan funds to do first-level due diligence saves resources, though likely the fund would want to identify other sources of deal flow, perhaps local universities. Going to traditional angel groups would defeat the purpose of working to place capital in underserved communities and industries. Having a clear definition of targeted social return will be important to aid in investment selection and avoid falling into “investments nobody else wants” as a primary target, which seems a recipe for failure. The measure most successful CDVC funds have in common is targeting job creation for low-income workers that leads them out of being low-income. Having a non-profit advisory service partner that can help the growing enterprise design career paths, provide employee training, help with recruiting and other challenges of growing an enterprise can improve the chances of success at minimal cost, as well as save the investee companies from the burden of doing the additional research and trial-and-error associated with implementing new internal systems.

What have other funds done? SJF Ventures in North Carolina capitalized its first fund in 1999 at 17 million and its second fund closed in 2007 at 28 million. They have a partner non-profit that offers technical assistance, including a “getting ready for equity” class. Their criteria: “Require $1 million to $5 million in equity financing to produce rapid expansion; Offer compelling solutions to urgent problems in large markets; Generate rapidly growing sales, typically already greater than $1 million per year; Represent management teams with deep domain expertise in their respective industries and a commitment to positively impact the world.” (SJF website) SJF works in social value on a deal-by-deal basis. In one case, for a company to receive funding they required the company provide health insurance for their existing and future employees – AND they were able to provide free assistance for doing that with their technical assistance partner. (Personal conversation with Bonny Mollenbrock). SJF Advisory Services, the technical assistance partner, does not appear to operate a loan fund.

CEI Community Ventures in Maine is organized as a wholly-owned subsidiary of their technical assistance non-profit. Their first fund closed in 1996 with a total of 5.5 million. Their second fund closed in 2001 with a total of 20 million. Their target investments: “$750,000 in a range from $500,000 to $2 million. We anticipate exiting each portfolio company at appreciated multiples within 5 to 7 years. Each fund portfolio is diversified by business stage, industry, geography and social benefit.” (CEI Ventures website). Their criteria: “Quality Management Team with relevant experience, visionary leadership, deep commitment and cohesive approach; Prospects for Attractive Return with an appealing market opportunity, realistic projections, appropriate valuation and pragmatic exit plan; Competitive Advantage through proprietary interest in technology, intellectual property, distribution system or other unique situation; Social Benefit including quality employment opportunities. Each portfolio company is required to sign an Employment and Training Agreement (”ETAG”), securing a commitment to hire individuals with low income backgrounds.”

Pacific Community Ventures closed their third fund, PCV III, in 2007 with $40 million, after a very well publicized successful exit for a prior portfolio company: Timbuk2. PCV II raised 13.2 million in 2003 and their first fund was 6.25 million, closed in 2001. They look to invest 1 to 5 million in a company in the southern California region. Their areas of focus are food products & distribution, non capital-intensive manufacturing, and green growth sectors of alternative energy, health & wellness. They also invest in education. Like the other funds, they look for traditional opportunities for growth: proven management, strong revenue growth, substantial margins and defensible competitive advantages. They have very well developed internal social metrics and they also look to develop a low-income workforce with opportunities for employee growth, both in on-job skills and life financial skills. And unlike a traditional VC, when they negotiated their investment in Timbuk2, they negotiated a stake for employees as well, resulting in over $1 million being distributed across 40 line workers when the company got bought.

A cleantech CDVC fund, partnered with a Green For All focused non-profit, is something I could really get excited about.

Community Economic Development appeals to me because I’m attached to measurable results, and managing my foundation has at times been a struggle for me. I believe in accountability – down to how I spend my own personal time, I see how a lack of accountability leads to a lack of focus. Tim talks about how doing investing with non-profits instead of just gifting can give them an accountability that can be helpful. With my grant making, I’ve been trying to figure out what appropriate accountability is. One limitation is that I have to invest some of myself and my time to hold someone accountable, and there’s been a limit to that. A second challenge is trying to figure out how to be compassionate but still have some kind of standards.

I found an example in coffee growing. In the December 2007 issue of Tea & Coffee, there’s an article about work illycaffé is doing in Brazil. They’re doing it outside the Fair Trade system so it’s not exactly Fair Trade but it’s similar. Most people have only a vague idea that Fair Trade means workers get fair wages. It’s actually a complicated setup where specific Fair Trade price mark-ups are paid into specific funds that are then allocated by worker cooperatives. It’s also more than that – Fair Trade means working to help supplier-partners develop their own businesses, growing capacity and quality. What illycaffé is doing mirrors that.

The key components of what they’re doing are: 1) they have a clear standard of success – they are able to set a quality bar for coffee and measure whether or not a bag of coffee meets that bar. 2) there’s a clear reward for meeting that standard – they will buy at a premium every bag of coffee that meets their standard. 3) The provide opportunities for local farmers to learn how to meet their standard, via the illy University of Coffee and the illy Coffee Club, which teach management, environmental stewardship and technical training. Finally, They achieve visibility for these programs via an annual competition (Prêmio Brasil De Qualidade Do Café Para Espresso) where the winners receive prizes and illy gets preferential rights to buy the coffees submitted. Another nice summary of their work is here.

This to me seems like an excellent model – it establishes a well-understood, transparent system that the farmers can choose to participate in or not. Should farmers choose to participate at least some of the costs and rewards are clear, and a path to successful participation is provided. This is community economic development – here’s what success looks like, here are the tools, though in the US we tend to fall down on the “and here’s some(ideally free) help in understanding and using the tools” for true accessibility. That first step in the ladder is what Washington CASH provides locally.

The whole chain is what I would like to provide with my foundation, but it takes a well resourced leader to set all that up and manage it, and I have to admit The Massena Foundation is not that. Larger organizations, and particularly corporations like illy, DO have that kind of capacity, which leads me to believe that this kind of work is what corporate philanthropy should be. At the Corporation 20/20 conference last November in Boston, one of the speakers focused on the need to get corporate money out of politics, and for him also out of communities. It’s too easy with their relatively more significant resources for corporations to drive community decision-making. I thought that was interesting and I agree there’s a fuzzy line between corporate grant-making and marketing. But in Community Economic Development – large, stable, well organized corporations have a completely unique value to offer – access to markets and access to well-developed systems and training. Sharing that access would be worth more than any dollar grant they could make.

He starts off with an extreme perspective, explaining that the best possible stock returns, with hindsight, were from Phillip Morris. He then compares investing solely in them against a strategy that has zero measurable social good (negative screening - simply not buying stocks of companies you don’t believe in), so of course it’s the most extreme possible example. But really, lots and lots of people would not happen to be invested in Phillip Morris anyway - certianly no-one would have invested solely in Phillip Morris- it’s only with hindsight you can see it do so well. So it’s a nonsensical comparison. I agree completely that screening can’t forcibly alter corporate behavoir, but I still consider it worthwhile and he admits later in the article that investment decisions do have some influence on corporate behavior.

Once the article gets past the first half page or so, it’s more reasonable. We agree screening can’t force companies to change a la divestment from South Africa, but having investment managers, who prioritize SRI, asking questions in quarterly calls does have an effect. It’s also true that screening criteria are very variable and which issues matter is in the eye of the beholder, so while he raises it as a complaint, it’s good message to investors to not just pick any screened fund but ask what they screen for and make sure it matches your values.

Can investors making positive screens be taken in by greenwashers? Greenwashers would be companies or funds claiming to somehow responsible but making only surface fixes and not really changing practices. That’s another concern he raises, but I don’t see how this issues is much different than regular investing – there are hundreds of potential funds and advisors and if you don’t want a dud you need to dig a little.

Henry appropriately includes shareholder advocacy as an SRI technique - the practice of holding stocks of companies with room for improvement and then agitating for improvement by filing shareholder resolutions and speaking at company shareholder meetings. The best criticism he can come up with of advocacy is that other folks free-ride on the activists. To me, that complaint is the pinnacle of the capitalist selfishness that I am absolutely out to circumvent as an SRI investor, so it doesn’t fly with me. Do I not pick up litter because everyone will benefit? Cleaning up after your own dog is more about everybody else than you, so should people stop doing it? This is about having values and living by them, the fact that other people might benefit is actually fundamental to being *socially* responsible.

He wraps up with a criticism that SRI funds have not to-date provided the highest possible return. Again, welcome to a core of being socially responsible instead of self-focused and meet the concept of “good enough”. He notes that Domini beat the S&P 500, but Vanguard had higher returns still. So what? How many traditional investors have the privilege of finding themselves in the most successful investment fund quarter after quarter anyway? Domini is good enough, AND is a meaningful voice in corporate ownership for my values. That’s a surefire win in my book.

1) Personal integrity:
SRI goes all the way to the start of US history to the Quakers saying you couldn’t be a Quaker and own slaves – basically saying it’s not acceptable to remove moral judgment from economic activity. In a continuation of saying that your money shouldn’t do anything you wouldn’t do, early financial folks (largely churches investing their funds) did screening with their investing and avoided sin investments like alcohol, tobacco and weaponry. That carried forward into investment funds like PAX World Fund and Domini. Screening grew into the movement to divest from South Africa as part of pressuring the system of Apartheid, and perhaps it was being part of that success that helped fuel enthusiasm for larger market influence.

2) Market influence:
Screening is effective for personal integrity, but because money is fungible and the capital markets so large, it’s not really effective as a market control. So some folks have raised the bar with the shareholder activism movements – pressing companies to disclose more about executive pay, about their impact on the environment, about their hiring practices. Or do things like offer better benefits to their employees. No company has actually been forced to do anything, in fact in fact several resolutions have been passed at Weyerhaeuser meetings and that’s how I found out that shareholder resolutions are non-binding anyway! ! But there’s still influence, even without passing resolutions companies have come to the negotiating table and made changes in response to filings. Often times the filing party will agree to withdraw the resolution before shareholders ever see it. As more and more investors work to figure out what this SRI thing is, more businesses have to pay attention. Key also is getting clarity on what the new rules are and what we plan to do about it. I think it’s evolving and as more money comes under the SRI umbrella there will be more ability to reward companies doing the right things. As more investor experience is developed under an SRI umbrella there will be more opportunity to know what’s really a return/reward tradeoff and what’s just old money tales. There is also a current movement to divest from Darfur because of the genocide there, and perhaps the targeted geographic scope and more isolated market will again have a more powerful effect.

Capital Markets are about scale, so it’s going to take time. What’s working? The Carbon Disclosure Project (CDP) is working at a large scale. The CDP is a grouping of institutional investors who every year sign on to a request to companies that they respond to a questionnaire about their greenhouse gas emissions, and generally the vulnerability of their business to climate change. Every year more investors sign on, more companies respond, and those responses are more thoughtful. “The CDP 5 information request was signed by more than 280 institutional investors with assets of more than $41 trillion and sent on 1st February 2007.” This is a great example of markets acting with the clarity of a simple common goal. Climate change will be one of the first things to come down to smaller businesses, though health care and employee transportation are SRI issues and are already there for small businesses.

3) Community Investing
Trillium defines this as follows: “These investments are typically directed to community loan funds, nonprofit groups, and community development banks that help provide a flow of capital to historically under-served sectors of society, both domestically and abroad.” This could mean holding funds in community banks like Shorebank Pacific. This is a good option for organizations with reserve funds that need to be FDIC managed. Shorebank and others have the ability to manage million-dollar funds and use a network of community development banks to ensure the money is spread across FDIC insured accounts. This category would include investing in low-income housing real estate projects, or supporting community development loan funds.

Community Investing can include venture capital style investing via Community Development Venture Capital (CDVC) funds. These are venture capital funds, often associated with a community development non-profit or loan fund, that have a geographic focus and support companies that can provide living-wage jobs, employee skill training and provide employee benefits. Leading examples include Pacific Community Ventures in San Francisco, Costal Enterprises Inc in Maine, Kentucky Highlands Corporation in Kentucky, and SJF in North Carolina.

4) Risk Reduction:
The most recent shift has been towards the argument that a socially and environmentally responsibly run company is inevitably a better run company and therefore a lower risk investment. Folks pursuing this strategy seem to gather under the label ESG: Environment, Social & Governance. The idea is to use how a company treats the environmental, social and governance issues as a indicator of how the company makes all the less visible decisions. ISS (institutional Shareholder Services) offers an array of “Sustainability Risk Reports” and “ESG Research and Analytics” reports.

There are other tacks for externally reading that a company is socially responsible. One fund focuses on companies track records with diversity. Another fund looks at how much a company invests in employee training.

Let’s get philosophical

Making tradeoffs is the core of doing business. Where do you focus your time, where do you allocate your dollars, what do you develop as your core competency, how do you adapt when the market changes. Business is about finding your spot in a complex envelope of financial sustainability in an n-dimensional decision space. SRI is about trying to support and encourage businesses that focus on long-term value distributed among all their stakeholders. The folks interviewed by Jill Bamburg for her book “Getting To Scale” didn’t see a tradeoff between building a company and supporting their social values.

“Mission-related impact, not wealth creation, is the central measure by which social entrepreneurs evaluate success. This is the core of what distinguishes social entrepreneurs from business entrepreneurs. For a social entrepreneur, the social mission is fundamental and cannot be reduced to creating private benefits for shareholders. Making a profit, creating wealth, or serving the desires of customers may be part of the model, but these are means to a social end, not the end in itself.” Project Impact, an organization that has revolutionized cataract surgery in India.

In management class at BGI I picked up a quote I liked: CSR - HR = PR. That’s from Adine Mees and Jaime Burnham, Canadian Business for Social Responsibility, quoted in Driving Success: Human resources and sustainable development by the World Business Council for Sustainable Development. Basically saying that corporate social responsibility that doesn’t start with how you treat your employees isn’t genuine. And how could it be? This perspective brings us back to the Quakers – don’t let your money do anything you wouldn’t want to be doing, and to Gandhi – every step we take towards justice must have justice in it.

The field evolves steadily, but now when you talk to your SRI investment manager (or when you look up one on the Social Investment Forum) you have some topics to explore.