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From Temperance to Guns, Investing for Change Has a Long History

Can investors align their money and their values?

The question has gained new urgency in the wake of the horrific shootings at a Florida high school, as investments in gun makers come under scrutiny. In New Jersey, lawmakers are aiming to eliminate such stocks from the state’s pension fund, while last week BlackRock, the giant asset manager, told clients it is exploring new funds that exclude firms that make or sell guns. Many individual investors, too, are asking whether their mutual and index funds include shares in gun manufacturers.

So far, it has been social media campaigns and the threat of consumer boycotts that have driven modest changes, including recent decisions by Dick’s Sporting Goods and Wal-mart to tighten their policies on gun sales. Over the long term, though, pressure from investors is more likely to force management’s hand. The long history of socially responsible investing explains why, even as it offers lessons for present-day investors hoping to shape the gun debate.

Sin Stocks

Socially responsible investing dates to eighteenth-century British minister and social reformer John Wesley, who railed against tavern owners, pawnbrokers, and others whose businesses he saw as contributing to society’s ills. In his 1760 sermon “The Use of Money,” Wesley condemned profiting from the sale of the “liquid fire” that he believed merely exploited the addictions of the poor.

In the early twentieth century, Wesley’s views reverberated among American temperance campaigners, who, in 1928, founded the Pioneer Fund, the first mutual fund to ban investment in so-called “sin stocks” — alcohol, tobacco, and gambling.


The 1960s saw socially responsible investing expand beyond its faith-based roots, spurred by antiwar, civil rights, and consumer rights struggles. The civil rights group FIGHT, for instance, purchased shares in Eastman Kodak to press the company to provide better living conditions for black employees, while student activists condemned university endowments for their investments in the defense industry. These campaigns led to the creation of the first “modern” socially responsible mutual fund, the Pax World Fund, in 1971.

It was opposition to South African apartheid, however, that forged today’s movement for socially responsible investing. In 1977, the Reverend Leon Sullivan, a confidante of Martin Luther King, Jr., proposed minimum standards for US companies operating in South Africa, including “non-segregation of all races” and “equal pay for equal work.” By the early 1980s, major institutional investors, such as the state of Connecticut and the University of Wisconsin, had adopted Sullivan’s principles as a requirement of all companies in which they were invested.

Other institutional investors soon followed suit. After South Africa’s draconian 1985 state of emergency, CALPERS, the California pension fund, fully divested from South Africa, while US mutual funds that screened out South African investments grew ten-fold, to $400 billion. Leading US investment banks quietly distanced themselves from South Africa to avoid losing this major pension business, while in the UK, Barclays responded to similar pressure by reducing its role in the South African financial markets.

Increasingly cut off from the global capital markets, South Africa saw its currency collapse. When apartheid finally gave way to majority rule in 1994, symbolized by the inauguration of Nelson Mandela as South Africa’s new president, divestment was a major cause.

Opposition to apartheid, meanwhile, shaped much of the infrastructure of today’s socially responsible investing movement. For instance, in 1990 it inspired Amy Domini to create the Domini 400 Social Index (since renamed the MSCI KLD 400 Social Index), which focuses on companies that benefit the environment, society, and governance (ESG).

Lessons of the Anti-Apartheid Struggle

The lessons of the anti-apartheid struggle — the need for large-scale divestment, the importance of specific standards, the role shareholders can play — are widely recognized by today’s socially responsible investors. Still, history can help frame the choices they face:

  • Should socially responsible funds screen for companies with the best environmental, social, and governance (ESG) practices, or merely weed out “bad” apples? History suggests they should work in concert, as they did in South Africa.

  • Can companies attract better quality shareholders — those with a long-term focus, for instance — by catering to those who care about socially responsible investing?

  • How can institutions, families, and individuals identify the values that will inform their investment choices in the first place? Those values, of course, are a function of their own histories.

  • Do socially-responsible funds help investors’ bottom line as well as their values? Available evidence suggests they do, though not consistently, which makes further research all the more urgent.

This final question is in many ways the most critical. Asset managers are fiduciaries, meaning they must demonstrate that the changes they advocate for are in the financial, not just moral, interests of their investors.

And this, in turn, points to the most salient lesson history has to offer: investment choices are only one front in the push for social change. To be effective, they must be embedded in and inspired by broader social movements. The temperance campaigners who helped launch the Pioneer Fund were also fierce proponents of Prohibition. Even Leon Sullivan recognized that his principles, which derived in part from the civil rights era, were only a first step in a larger effort to “turn the screws” on companies that fell short.

Socially responsible investing, in other words, is no substitute for the hard work of driving social change. In that work, individuals, companies, institutions, and governments all have a role to play.

Arielle Gorin, a Saybrook senior consultant, is currently engaged in a study of a global beauty giant as well as a history of the Ford Foundation.


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