SRI Metamorphosis for 401(k) Performance

With a nod to Kafka (fear not - SRI but  no spiders today),  you, Adam,  have awoken to find yourself transformed into an employee of a major corporation, Widgco, the world's largest widget company.  You are overjoyed to discover that you have been adding regularly to your 401(k), and Widgco has partially matched your savings, but you have a nagging feeling that somewhere in a prior life you were committed to making only socially responsible investments.   Somehow your account has been split between two funds – both managed by the 401(k) administrator, FidVan.  One fund, Alpha Uber Alles, is an international growth fund with a track record of outperforming the S&P 500, making a decent comeback from last year.  The other is a managed, balanced fund that shifted the portfolio heavily towards fixed income just as equities came back to life – ouch.  Neither mentions anything about SRI or ES&G as a factor in selecting investments.  Both seem to invest in arms manufacturers, tobacco companies, and, horrors, companies where one old white man is both CEO and Chair. After scanning the menu of investment options, you realize there is no fund on the list that promotes itself as socially responsible.  You march steadfastly to your HR rep, Bob, to protest, only to find that Widgco is committed to offering only funds available through FidVan and the execs involved are so busy figuring out how to get employees to save that they aren't interested in any complications like social responsibility.

The next day when  you awaken you have become  Bob, the HR rep.  Having slept on Adam's request you see it in a new light.  Lots of employees have a conscience, they might want to feel good about their investments.  The literature shows the SRI funds can compete on return.  Maybe SRI is actually a chance to capture the  attention of some of the many Widgco employees who seem to be paralyzed by any investment decision related to their 401(k)s. You go to your boss, Chuck, who says “Nice Idea”, maybe just a tad dismissively, before explaining that Widgco is contractually committed to deal exclusively with FidVan and the funds it offers (including some managed by third parties).  Chuck adds that it just isn't feasible to deal with more than one administrator on the 401(k)s.  FidVan just doesn't offer a lot in the way of SRI for it's 401(k)s.

The next morning you are (surprise) Chuck.  You have worked on some projects with Widgco's pension and investment committee and you know some of the pension trust for Widgco's defined benefit plan is managed by Trillium – Bob did have a point, maybe there's some way to expand the 401(k) menu.  If we can have six different international funds maybe we can make room for one or two SRI funds.  You have lunch with Dave, from Treasury, who knows everything and actually sits on the pension and investment committee.  Dave snorts at the idea of two 401(k) administrators for one employer, and he's interested in sustainable investing but doesn't see much pressure on FidVan to add socially responsible funds.  Dave says he once mentioned Social(k) to the pension and investment committee, but all he got was puzzled looks.  Everyone uses FidVan, meaning there is safety in numbers, and no one is leaving without a reason.  Dave thinks the SRI funds won't get much play on the 401(k) menus unless and until outfits like Riskmetrics put some serious weight on 401(k) options when they compile CSR ratings. Then, maybe, FidVan will start promoting some SRI options or many more mega-size multinational clients will take a harder look at outfits like Social(k).

Next morning you are – not Dave, gotcha.  You are a blogger inspired by Social(k)'s announcement that it has opened a San Francisco office.  Great website, impressive commitment and one of the all time best names.  “Social(k)”, what else could evoke a breakfast cereal that promotes itself as a health food and the social contract of Hobbes, Locke and Rousseau in just seven letters, plus two)). That is actually not a typo stab at a smiley face, but a double chin – old bloggers need to get creative once in a while.

Photo Credit: kilarin