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February 19, 2004
Moving From the Business Case for SRI and CSR to the Fiduciary Case
    by William Baue

The business case for socially responsible investing and corporate social responsibility may not drive individual investors, but the fiduciary case engages institutional investors.

Ever wonder why people feel the need to make the "business case" for socially responsible investing (SRI) and corporate social responsibility (CSR)? Implicitly, the business case defends against the charge that a practice or policy is not worth employing unless its profitability can be proven.

"Why on earth should one need to make a 'business case' for doing the right thing?" asks Matthew Kiernan, CEO of Innovest Strategic Value Advisors, a global rating firm that links sustainability performance to financial performance.

The question arises: is the business case for SRI and CSR a tool for attracting investment, or is it more of a defense against critics of SRI and CSR?

"I am constantly asked to make 'the business case for SRI,' which translated means, 'prove to us that companies that do good do well and that therefore we'll do very well,'" said Peter Kinder, president and co-founder of Boston-based KLD Research & Analytics. KLD provides research on corporate social and environmental performance to investors.

"The 'business case' test for SRI and CSR is a means of dismissing and denigrating both, and we should not entertain the question," Mr. Kinder told "By validating the question by responding to it, we admit the validity of the business case for precisely the behavior we want to change: prioritizing profit over all else."

To some, financial performance may not be as important a consideration for implementing SRI and CSR as promoting social and environmental sustainability. Others may feel that they cannot hold that view.

"Many stakeholders have an interest in sustainability for other reasons than performance--and rightfully so," said Alex Barkawi, managing director of Zurich-based Sustainability Asset Management (SAM), which manages the Dow Jones Sustainability Indexes (DJSI).

"At the same time, performance is a prime concern of most investors--this is especially true for institutional investors who often even have a legal obligation to maximize returns."

"In this context, it is crucial to demonstrate the positive links between sustainability and performance," Mr. Barkawi told

In other words, institutional investors' fiduciary duty may require them to consider the business case for SRI and CSR. Interestingly, instead of compromising SRI and CSR, the "fiduciary case" may in fact invigorate SRI and CSR uptake by requiring so-called mainstream investors to evaluate the effects of social and environmental issues on financial performance.

"The 'prudent fiduciary' equation is slowly but surely being turned on its head; increasingly, fiduciaries are being seen as derelict in their responsibilities if they do not ensure that environmental and social risks are addressed," states Dr. Kiernan. "Baker & McKenzie, a prestigious U.S.-headquartered law firm which also happens to be the world's largest, has gone so far as to publish a report opining that U.S. fiduciaries may be obligated to address CSR issues and risks."

The fiduciary case requires institutional investors to examine the effects of corporate social and environmental performance on financial performance. While the majority of empirical studies correlate strong social and environmental performance to neutral or positive financial performance, these studies have not established causation. Thus SRI and CSR cannot be said to guarantee positive financial performance.

"There is nothing automatic about success--the pulling of the social responsibility lever does not automatically result in cash appearing on the bottom line," said Mallen Baker, development director for London-based CSR advocate Business in the Community (BITC).

Mr. Baker notes that financial performance and social and environmental performance cannot be isolated from one another, but rather are interdependent.

"The smart CEO knows that being profitable is a key precondition of CSR--a failed company with thousands of lost jobs cannot deliver a positive impact on society," Mr. Baker told "CSR is about doing business successfully and achieving a positive impact on society as a result."


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