Tuesday, August 31, 2010

Do we really need another acronym?

The responsible investment movement has struggled for years with acronyms. The well-meaning folks who coined the term SRI (socially responsible investing) couldn’t imagine the heated debate those three letters continue to generate.

Actually, it’s mostly just the one letter – R for responsible – that causes otherwise sensible people to turn into raving lunatics. How many times have you heard this: If SRI is responsible, does that make all other investments irresponsible?

No is the answer, but it’s a fair question. Nobody wants to be judgmental, but really, isn’t that what investing is all about? Judging which investment vehicles you think will outperform the rest of the pack? Viewed from that angle, SRI is no different than any other investment approach – stocks are chosen from a universe of defined parameters.

Small cap, large cap, emerging markets, global bonds, technology, finance, health-care, water, you name it, there’s a specialty fund for just about everything.

Still, SRI is more than just a specialty or niche fund category, and that’s probably why the debate over the word “responsible” has continued. The institutional investment community neatly sidestepped the issue by adopting ESG (environmental, social and governance). It works, but ESG hasn’t been widely accepted on the retail side.

The latest call for change comes from Matthew Kiernan, author and former chief executive of Innovest Strategic Value Advisors (purchased by Risk Metrics Group and now a part of MSCI), and more recently, founder and chief executive of Inflection Point Capital Partners.

In a recent editorial posted on Responsible Investor, Kiernan proposed the adoption of SAI, or “strategically aware investing,” arguing that “if sustainability concerns could be shorn of their historical, ideological and emotional baggage, we’d all be further ahead.”

Kiernan believes that the “right” acronym “just might alleviate some of both of the intellectual and commercial confusion and anarchy of the current situation.”

“Perhaps if doing so could be rebranded and conceived as simply strategically aware investing, rather than stigmatized or ghettoized as “ESG/RI/SI investing” more institutions and asset managers might actually try it.”

Is there really any solid evidence that the current acronyms used to describe our movement are having a deleterious effect and therefore slowing down the “mainstreaming” of SRI? Could there not be other factors at play, such as the state of the economy and the well-documented advisor road block?

Furthermore, the use of words like “anarchy” to describe a debate over an acronym seems a bit over the top, and I don’t think I’m the only one who thinks that. Every time this issue comes up, my friends in the mainstream investment community almost always say: “Are you guys still arguing about that?”

And it’s a very good point. Don’t we have bigger things to worry about? Of course we do. We may not love it, but SRI is an established and well-known acronym. Advisors and investors understand what it means. My mother understands what it means.

So why muddy the waters with a new acronym, especially one like SAI, which doesn’t exactly roll off the tongue (Would we pronounce is as “sigh”?). I have a lot of respect for Matthew Kiernan - he has established himself as one of the great thinkers in the SRI community. But I’m not sure why he decided to tackle the acronym debate, an issue that should have been settled years ago, and in many people’s minds, already has been. Let’s move on to bigger and more important challenges. There are lots out there. Sigh.

No comments:

Post a Comment