Investing in Virtue Is Hard When So Few Companies Measure Up

It’s not easy being a socially conscious investor. To see why, look no further than Facebook Inc.

By any reasonable ethical standard, the social media giant doesn’t measure up. The Cambridge Analytica debacle and its aftermath revealed that Facebook is collecting far more information on its users — and even non-users — than it let on. And, as my colleague Shira Ovide pointed out, when CEO Mark Zuckerberg had the opportunity to come clean last week during two days of congressional testimony, he ducked questions about how the company operates.

Facebook’s wily ways appear to be catching up to it. According to a March 21-23 Reuters/Ipsos poll, only 41 percent of Americans “trust Facebook to obey laws that protect their personal information.” An April 8-9 SurveyMonkey/Recode poll askedrespondents which technology company they least trust with their personal information among Amazon, Apple, Facebook, Google, Lyft, Microsoft, Netflix, Tesla, Twitter, Snap and Uber, and 56 percent chose Facebook. The runner-up was Google, with just 5 percent.

Given all the questions surrounding Facebook, investors may be surprised to learn that its stock is commonly held by so-called socially responsible funds, which invest in companies deemed to be good citizens.

The biggest such exchange-traded fund — the iShares MSCI KLD 400 Social ETF, with $1 billion in assets — bills itself as an “exposure to socially responsible U.S. companies” and urges investors to use the fund to “invest based on your personal values.” The fund has a 3.5 percent allocation to Facebook.

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Can Calpers Live With Responsible Returns?

The California Public Employees’ Retirement System recently opened a new chapter in socially responsible investing (also known as environment, social and governance, or ESG, investing) when its investment committee decided to start requiring that the boards of the companies it invests in include climate change experts.

With this move, Calpers is attempting to turn ESG investing on its head. Rather than divest from companies it deems undesirable, it will engage those companies and attempt to improve them from the inside.

Which begs the question: What’s causing Calpers to rethink the traditional levers of ESG investing?

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