Socially Responsible Investing Could Become Law
Investors and companies have always had the option of adhering to the best practices of socially responsible investing. But a new bill could enshrine SRI in law.
Should the availability of socially responsible investment options be a government-protected right? Representative James Langevin, a Rhode Island Democrat, is one person who thinks so, and he’s sponsored a bill to promote it. But the Federal Retirement Thrift Investment Board (FRTIB) — which oversees the $270 billion federal employees’ retirement system, which would be legally required to offer an SRI option if Langevin’s bill becomes law — is of a very different opinion.
Langevin says the idea for his bill, the Federal Employees Responsible Investment Act, was inspired by thrift savings plan (TSP) participants who asked him to look into investment options that could exclude companies at the center of government investigations or punitive actions. The proposed legislation that resulted, which Langevin reintroduced for the fifth time in late July, would mandate that the FRTIB select a corporate sustainability index and offer it as an investment option for TSP plan participants. (Currently, federal employees with TSPs have a choice of ten funds.)
But the thrift savings plan itself has made it clear that it resists the idea of adding an SRI option. The FRTIB’s director of external affairs, Thomas Trabucco, explains that the reason for the opposition is, and has long been, “broad and structural.”
“Congress provided a structure for the TSP that employed broad-based, inclusive, passively managed index funds. We believe that remains the best approach,” Trabucco says. “The record shows that we have consistently opposed all of these [SRI] efforts, regardless of how meritorious they may appear.”
Indeed, the record that Trabucco cites includes a long list of proposals for social and political screens on the board’s investments, all of which it has rejected — from a South Africa–free fund proposal in 1987 to suggested divestment from businesses in Darfur in 2005 and 2007 to a sustainable energy fund in 2005.
To illustrate the FRTIB’s reasoning for its across-the-board rejection of these proposals, Trabucco points to a 2006 investment review by consulting firm Hewitt EnnisKnupp. The report concludes that “SRI does not meet most of the key criteria established, as SRI is a style of investing, not an asset class.” One of the central problems, Hewitt EnnisKrupp explains, is practical: The board would “have to identify the issue(s) that it wanted to address and how it would apply its criteria (positive or exclusionary screens). It is hard to imagine the FRTIB would find ‘perfect’ common ground and not be in contradiction with practices that are legal.”
Representative Langevin doesn’t think that argument should be a showstopper. “Definitions vary significantly among SRI groups,” he says, “but I think we could come up with a definition [of SRI] that constitutes a fair definition of how that could be determined.” He’s also asked the Congressional Budget Office to score the bill, to address any concerns about the costs involved in its implementation.
Langevin says the bill has drawn more support in this session of Congress than in any before it, although it has yet to move out of committee. His goal at this stage is to “get as many sponsors as possible, build momentum and hopefully see it passed out of committee at some point in the near future.”
For his part, the FRTIB’s Trabucco says the board will have to see more activity around the bill before it makes any moves to actively oppose the legislation.