The Ethics of SRI
SRI works by affecting the flow of large investments, applying ethics to corporate action. Multinational companies have, no doubt, immense influence over their supply chains. Sometimes, they are also cited for egregious and unethical practices, particularly when they work in developing countries with weak legislation.
The way to correct for these problems, however, is through government legislation and oversight - which is how it works in the developed world. SRI, by contrast, allows fragmented special interest groups to lobby across borders, instead of giving sovereign governments control.
Another problem surfaces when we ask the question, 'whose ethics'. SRI allows a nebulous 'civil society' to define the ethical agenda, so we apply western ethics, social and environmental practices to countries that may otherwise choose to have very different standards. Effectively, it weakens the institutions and disenfranchises the people of those countries where corporate action comes under the scanner - in this case South Africa. An NGO in Washington, DC and an asset manager in London decide what is to happen to a child working in Bangladesh.
Interestingly, since SRI works by subsuming the authority of government it can only be effective in countries where institutions are extremely weak. By its very dynamics, SRI cannot work as a lobbying tool in the developed world and is less effective in large developing economies such as India and China. In these countries the NGO is limited in its ability to impact the domestic agenda while conversely corporates wield much more political lobbying power. SRI can, therefore, impact Nike's labor practices in Bangladesh, but not gun related violence in the USA.
The Practical Dilemma
There are other practical considerations to look at as well. For corporates, there is the short-term contradiction between addressing social concerns and maximizing profits. For the philanthropy foundation, however, there is another issue.
Most foundations depend on using the returns generated from the corpus (the assets under management) to fund their projects. Maximize the returns and you expand the amount that can be disbursed to projects. So, if the Gates Foundation chooses to skip some investments in companies with questionable ethical practices, it does so at the
risk of reducing its returns, and therefore its project financing.
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