Legal Foundation of Ethical Investments

In Look Who Demands Profits Above All (Los Angeles Times, September 1, 2000) former Secretary of Labor, Robert Reich, argues that CalPERS and TIAA-CREF are only doing their job, maximizing the value of their investors' portfolios, when they refuse to consider ethics in their investments. "If we want companies to be more socially responsible, we'll have to pass laws requiring them to be so, and those laws will have to be enforced. And not just national laws. . .ultimately, many such laws will have to be international."

Reich appeared to take a much different position while at the Department of Labor when he released a booklet Road to High-Performance Workplaces: A Guide to Better Jobs and Better Business Results which argues:

High performance companies view their workers as valuable assets and make investments accordingly. Training is viewed as continuous, with a commitment to life-long learning.
High performance workplaces encourage workers to accept multiple new roles as problem-solvers, self-managers, and entrepreneurs. Management also invites workers to participate in the day-to-day activities of the company.
High performance companies gain long-term worker commitment by creating compensation systems tying pay to individual, team, and corporate performance. Such companies also seek to make executives more responsive to shareholder concerns by linking executive compensation to longer-term corporate goals.

While his more recent statement is true, international laws are needed and must be enforced, it is also true that pension and mutual funds have an important role in finding the areas of correlation between responsible investments and positive returns. SRI funds have been out-performing the market, not just because they identify good management and reduce liability, but because SRI funds recognize social trends and consider them an essential part of their investment strategy.

Tobacco is one example. It can only be profitable if we give little value to life and society agrees to pay for the health care needs which tobacco use creates. The Council for Responsible Public Investment estimates that California loses more than $10 billion a year from tobacco use due to health costs and time lost at work. As these hidden costs are revealed tobacco profits erode. Outraged citizens demand litigation, increased taxes, reduced subsidies, etc. SRI pension and mutual funds will outperform where they can identify the convergence of investment opportunities and social concerns.