New America
Open Technology Institute

A Look at Sustainable and Responsible Investment in Tech and Telecom

Blog Post
By 

Preston Rhea

Jan. 21, 2011

Investment is the oxygen of economic growth. As such, the impact made by companies that exhibit good corporate social responsibility is built upon the amount of investment capital directed towards them. There is a class of investors who support good corporate citizens, as well as companies whose operational behavior demonstrates a commitment to social justice and progress. This strategy, called sustainable and responsible (or socially responsible) investment, or SRI, seeks to maximize both financial and social returns. SRI investors utilize criteria detailing environmental, sustainability and governance factors (ESG) to guide their search for profitable and socially influential enterprises. They engage companies through both investment support and shareholder resolutions: for example, making use of proxy vote rules to influence boardroom decisions. SRI firms and related coalitions frequently associate with expert associations and NGOs to effect change beyond individual companies. This provides opportunities for technology and telecommunications-focused public interest groups to educate these actors about policy issues and socially responsible behavior in these markets.

The Social Investment Forum is the trade association for SRI in the United States. According to their 2010 trends report, $3.07 trillion dollars under professionally managed investment in the United States is administered according to SRI strategies. That is nearly one out of every eight dollars invested in the United States, and that number is growing. Growth can primarily be attributed to consumer demand, as 85% of surveyed investment managers cited client demand as the impetus for their SRI holdings. Among institutional investors, 52% responded that their primary reason for SRI investing is some form of legal requirement.

The key points of influence for SRI strategies and their subsequent economic, social and political outcomes are the SRI asset managers. Prominent American SRI asset management firms include Calvert, Pax World, Domini, Walden Asset Management, Trillium Asset Management and Parnassus Investments, to name a few. The strategy for these firms is to combine return on investment, just like any other asset manager, with ESG factors to build portfolios that maximize both monetary returns and corporate social responsibility improvements. Asset managers then educate financial advisors about SRI and market their funds to them. Financial advisors in turn help consumers manage investments. Asset managers are the key point of influence in corporate holdings.

Some SRI funds are based on different yield outlooks, like those which other asset managers produce, and some of them are based on social goals or themes, like Calvert’s Solution Funds, which are designed to fund the solution of energy and water issues. Other SRI funds are arranged around an asset manager’s desire to guide companies that have the potential to become better corporate citizens towards more sustainable and ethical behavior. Asset managers also prioritize a portion of their investment in community development financial institutions. The summary prospectuses for these asset managers’ funds are available online, detailing the holdings and performance of each fund.

An SRI analyst evaluates companies for investing using both positive and negative ESG criteria. For social impact, an analyst’s goal is not to exclude companies based on negative filters, it is to invest in companies so her firm can engage the leadership on ESG issues and make companies more responsible. They screen based on the ESG criteria, and engage based on impact and policy questions. If an SRI firm held investments in a company that was found to commit an irresponsible act, the solution for the asset manager would be to engage that company in corporate social responsibility; the investor’s social focus is on advocacy. In the SRI sphere, “Everything is not black and white,” says Aditi Mohapatra, a technology sustainability analyst for Calvert. “If we see an instance of an NGO claiming a company is dumping e-waste, we don't remove our investments. If we see a pattern of issues, we then decide to take more concrete action.”

A heightened priority on corporate advocacy and engagement underpins certain SRI strategies. Calvert’s SAGE fund for “enhanced engagement,” which includes holdings in Verizon and Comcast, is designed for companies that do not meet all of Calvert’s ESG criteria but show opportunities for engagement to influence their behavior. The most public and effective tool in the SRI advocate’s arsenal is the shareholder resolution and its partner, the proxy vote. As major shareholders, asset management firms can file shareholder resolutions, often co-signed by other shareholders as part of a coalition. These resolutions either force a decision on a matter of ESG consequence, or they spur the board to resolve a conflict before the matter comes to a binding vote, thus achieving the resolution’s goals. In publicly-traded companies these votes are a matter of public record, and prominent SRI asset managers make their proxy voting records and shareholder resolutions known on their websites. For example, SRI investors pressed tech manufacturers using Foxconn about worker suicides, trying to influence how companies engage with Foxconn to improve human rights.

Partnerships exist to achieve certain goals in the CSR and SRI spheres. The Global Network Initiative is a partnership of SRI investors, advocates, NGOs, academics and companies in the technology field that seeks to “advance freedom of expression and privacy in information and communication technologies.” Through the GNI and similar coalitions, SRI firms build an agenda to make effective change through shareholder resolutions, backed by influential corporate, academic and civil society voices. “For the past four years, we have filed shareholder resolutions with Cisco regarding human rights issues in China, because China uses Cisco technology to monitor its citizens. We want acknowledgement on Cisco’s part, but the company has not been responsive. Companies like Microsoft, Yahoo! and Google acknowledge and are working on those issues,” Mohapatra explains.

The Global Network Initiative is hardly the only opportunity for tech policy advocates to partner with SRI firms to influence corporate behavior. Open access and other media issues form the mission of OpenMic, an organization “working to promote a vibrant, diverse media ecosystem through market-based solutions.” Through OpenMic, Mohapatra says that Calvert is beginning to get involved in network neutrality issues. OpenMic also promotes universal broadband and a voluntary reporting framework for media companies. The organization was born at Trillium Asset Management, and is now a project of the Tides Center. Their resource council includes experts from Public Knowledge, the Future of Music Coalition and Princeton’s Center for Information Technology Policy, among other voices.

Climate change and the environment form a significant portion of issue-based fund offerings from SRI asset managers. The analysis for such funds is strengthened by CERES, an environmental NGO helping companies to advance on a range of sustainability issues. CERES launched the widely used Global Reporting Initiative for corporate sustainability. Mohapatra, who works with Dell through the CERES partnership, explains that “the focus with these partnerships is about leveraging where individuals are experts. I am on the team providing investor perspective, and there is someone from an e-waste coalition.”

Asset managers also get involved in public policy. The GNI has made a difference in engagement in the tech sector through lobbying. “With AMD, HP, Dell and GE we formed an initiative around conflict minerals. Several companies signed a letter advocating SEC chairman Schapiro to support ethical rule-making on Section 1502(e)(4) of the Dodd–Frank Wall Street Reform and Consumer Protection Act, requiring special disclosure related to conflict minerals from the Democratic Republic of the Congo.” That is just one of many examples of SRI investors influencing major legislation.

Given that SRI investing has developed so much and is clearly rising even through the recent economic downturn, engagement with SRI asset managers will continue to increase its level of impact - a social investment with attractive returns. Public interest advocates clearly have established channels through which to engage influential SRI asset managers. SRI advocacy in human rights issues, the use of prison labor, environmental concerns including e-waste, skill-building and educational support for employees and under-served stakeholders, and community engagement all seem to have active and established dialogue platforms that have grown for over a decade.

However, there are areas of great interest to tech- and telecom-sector issue advocates that enjoy less penetration among SRI asset managers. Although OpenMic covers network neutrality and open access advocacy, these issues do not yet command the same level of attention as human rights or environmental issues. There is a heavy amount of SRI engagement with companies like Verizon, Comcast and Cisco, so a conversation with OpenMic would be worthwhile for activists looking to extend their approach to open access and network neutrality. In addition to penetrating to the core of network neutrality with those companies, there are large portfolios of investments in other companies who would be willing to exert efforts to promote open access if educated by trusted advocates through these platforms. The need for equal freedoms for users on wireline and wireless media is another opportunity worth pursuing, especially since people of color and developing countries - communities that SRI advocates are heavily interested in - are at the leading edge of wireless Internet access.

Share-alike licensing, intellectual property reform and copyleft seem to be low to nonexistent in SRI areas of concern thus far. The economic and social benefits of copyleft and share-alike licensing should prove attractive to SRI analysts, but they must first be educated on the matter by activists. If that is successful, then activists may join SRI analysts in determining the best way to construct a fund to advance the issue through corporate action and the subsequent social impact. When a new issue gains enough traction in the SRI community, advocates should form a partnership platform like the Global Network Initiative or OpenMic to carry the dialogue forward, expanding the reach of the advocacy base to include SRI analysts, leading companies, academics, NGOs and civil servants.

The path should be readied for a coalition to emerge that will promote policy points to SRI analysts under the banner of digital justice. Since tech and telecom companies hold the material and productive keys to communications technology adoption among the consumer base, the investments needed for their products and services to succeed can take communications progress in a certain direction. If those investments come from SRI firms savvy in the digital justice cause, there would be an attendant impact in the market. The tools we use every day to communicate and create would be more amenable to achieving digital justice from the start.

It is intriguing that 52% of institutional investors cited legal requirements as their primary reason for SRI investing. There is likely a patchwork of municipal, state and federal law that mandates these investments, and more in-depth research is needed to determine what the major requirements are for institutions. What is clear is that policy advocates could greatly advance their cause if they understand laws that require institutions to invest a certain way and determine how to implement new laws that help reach their goals via SRI investing. The effect may be diffuse - SRI encompasses many things - but community banking development especially could receive a boost from successful policy changes in institutional investing requirements, if the law required a certain percentage of institutional investments to be placed in local community development financial institutions.

Investments are powerful. New methods, ideas and technologies that contribute to the advancement of our civilization all begin with an investment of some kind. The rising trend in SRI investing, the platforms activists already have to engage analysts, and the new opportunities activists can create all point to a powerful space for making change. Those with expertise in technology and telecommunications should contribute their efforts to influencing SRI analysts. That may be done simply by joining the conversation, or it may mean creating an activist-driven rating system for tech and telecom stocks, since none yet exists. Whatever the approach, engaging SRI analysts is a promising investment.

Major SRI Asset Managers

  1. Socially Responsible Financial Services Directory
  2. Association for Sustainable and Responsible Investment in Asia
  3. Responsible Investor
  4. Sustainable Resource Investment in the Rockies Conference
  5. The Inspired Economist
  6. European Sustainable Investment Forum
  7. Social Funds - Social Investment News
  8. Boston Area Sustainable Investment Consortium
  9. Social Investment Forum Trends Report Executive Summary
  10. Socially Responsible Investing - 10 FAQs