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October 11, 2002
Book Review: The SRI Advantage
    by Doug Wheat

In this important new book, author Peter Camejo makes a case for why socially responsible investing strategies lead to higher returns than non-SRI strategies.

With the completion of The SRI Advantage, Peter Camejo has filled a large gap in the existing literature about socially responsible investing. Previous books have concentrated on how one can and why one should participate in social investing, often from ethical or moral perspectives. Mr. Camejo’s contribution is focused squarely on dispelling a widely held myth that SRI investments do not earn competitive returns.

Mr. Camejo is very well versed in SRI strategies. He is the founder and chair of Progressive Asset Management, an investment firm that specializes in SRI. According to Mr. Camejo, SRI strategies enable investors to reduce company-specific risks in a portfolio. SRI strategies also allow investors to identify firms with strong finances and effective management. For example, SRI strategies weed out companies that harm society, such as those that sell tobacco or emit pollution from their factories. Moreover, the author states that SRI strategies identify companies that are less likely to develop unforeseen problems. These strategies also detect companies that are likely to possess financial and managerial resources that can “respond effectively to traditional business challenges.”

In addition, the author posits that using SRI strategies sensitizes the investment process to the social concerns of society. In essence, SRI strategies screen out companies that are in conflict with public opinion. The result, he states, is that socially responsible investments financially outperform investments that are not socially responsible.

Ultimately, Mr. Camejo asserts that outperformance results because “SRI sees an aspect of reality not included in the research of traditional Wall Street firms.” This concept is important because it allows the author to designate SRI strategies as a financial screen. When SRI strategies are viewed as a financial screen, the explanation of their ability to yield outperformance fits within accepted financial theories. This logic may make SRI more palatable to financial analysts and institutional investors than when the strategies are marketed as “socially responsible.”

Mr. Camejo writes, “Wall Street’s traditional view is that you can add alpha (performance), but that SRI does not because it uses screens that are external to financial performance. But Wall Street is wrong in this judgment, precisely because SRI is a financial screen.”

The recent jury award of $28 billion from Phillip Morris to a smoker must surely give pause to analysts who think every portfolio should have a slice of tobacco because it passes traditional financial screens.

Mr. Camejo does a commendable job presenting some complicated financial material. However, lay readers may find themselves lost in a sea of alphas and betas while financial analysts will likely be hunting in vain for detailed analyses. Nonetheless, both of these groups will find the book useful. Individual investors will find some comfort in the fact that they do not have to sacrifice financial performance to invest with their values. Financial professionals will get a solid view of SRI strategies and copious references they can look to for further clarification.

Readers will also benefit from the nine supporting chapters written by experts in the socially responsible investing field. These chapters provide some key arguments as to why SRI strategies should be considered by foundations and pension funds. They also offer additional views on how to employ SRI strategies in such areas as the environment, international investing, and community investing.

The SRI Advantage is sure to create some discussion. Mr. Camejo does not hold back in making claims and seems to even encourage readers to challenge his conclusions. He goes so far as to frame the premise of the book, that investments using SRI strategies outperform investments that do not consider social and environmental concerns, as a hypothesis rather than a proof. The author addresses some counter-arguments to his assertions but never wavers in his belief that because SRI strategies avoid companies that produce social harm, investments using these strategies outperform.

Finally, this book is also a call to existing social investors to not be satisfied with sub-par financial performance. Indeed, most SRI professionals will not claim that investments using SRI strategies outperform other investments; they simply say that investments using SRI strategies earn competitive returns. Now, Mr. Camejo suggests that outperformance is the new measure of success.

The SRI Advantage
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