Societe Generale Floats New SRI Investment, Management Fees To Go To Charity

Earlier this week, Paris-based banking giant Societe Generale announced the launch of its first socially responsible investment vehicle. What’s interesting about this particular investment is that SocGen plans to donate 100% of their management fees to charity.

The exchange traded note or ETN will trade on the London Stock Exchange and will invest in a basket of 25 mainly European companies. The companies have been selected based on their environmental, social and ESG (Environmental Social Governance) track records.

The charity that will benefit from the management fee donations is Teenage Cancer Trust, a UK-based organization which focuses on the needs of teenagers and young adults with cancer.

Sounds like a great idea, right?  Invest in socially responsible companies and have your investment fees go to a worthwhile cause?  Well, not so fast.

Let’s take a closer look at the underlying investments, shall we?

SocGen has selected a basket of 25 companies that will make up this investment.  According to the press release, they arrived at these specific companies by "combining ESG metrics with financial and stock performance data" and thus "identified one company from 25 different sectors, considered to be leaders in their sector for ESG management, offering the best combination of financial as well as ESG performance."

So, in essence, they are blending SRI and financial performance metrics to identify the cream of the crop in 25 different industries.  This is very much a best-in-class approach to SRI investing.   The upside to this method is the investor gets diversification across several different sectors (they aren’t just limited to renewable energy companies, for example).

However, there is a downside in this approach, particularly for the purist SRI investor.  By investing in companies across 25 different sectors, the investor will also get exposure to those industries that aren’t exactly poster children for CSR.

For example, one of the 25 companies SocGen has chosen is EADS, a Dutch Aerospace and Defense corporation. While their website highlights a commitment to several different CSR initiatives (and, to be fair, looks to be sincere), this doesn’t change the fact that part of their operations involve manufacturing missiles.  Designed to kill people. During times of war.

Another company that makes up this list of 25 is AngloAmerican, one of the world’s largest mining companies.  Then there’s OMV, an Austrian oil exploration and refining conglomerate.  And don’t forget Saipem, an Italian oil and gas equipment contractor…

To be fair, this is often how best-in-class SRI investing works.  The best-in-class manager targets those companies that are CSR leaders in their respective industries and, in a sense, rewards their good corporate behavior by purchasing their stock.  The thinking is that other companies will follow suit in order to reach certain CSR benchmarks in order to qualify for these investment dollars.

But what about the SRI investor who doesn’t want exposure to weapons manufacturers or a mining companies?  Well, this SocGen offering probably isn’t appropriate for that person.  And perhaps they would be better off putting their investment dollars to work elsewhere and using their gains to donate to a charity of their choice.

So what’s the moral of the story?  Just because an investment calls itself socially responsible doesn’t mean it’s going to be appropriate for every SRI investor.

Always do your homework.  And if you need help, talk to a professional investment advisor.

Image Credit: H005