New York – In an article that recently appeared in the International Herald Tribune, business columnist Joe Nocera called in question the legitimacy of SRI (socially responsible investment) research. In the article, Nocera argued that SRI research “allows investors to believe that their money is only being invested in the good guys…even though that is almost never true.”
To support his arguments, Nocera examines the research practices of a leading SRI research firm, KLD Analytics. The article reports that the staff at KLD “almost never goes abroad to do on-site inspections, but relies on media reports, blogs, activist organizations and the companies themselves.” With only 40 analysts covering over 3,000 companies, Nocera questions the ability of such a small analytical team to make informed judgments on the ESG (environmental, social and governance) practices of such a large coverage universe.
While Nocera’s report raises valid concerns about the quality of KLD’s research, his general argument about the SRI industry falls short. Contrary to what the article suggests, there are multiple firms that have rigorous research methodologies. These firms include Asset4 and Innovest Strategic Value Advisors, which both use quantitative metrics to evaluate the ESG practices of public corporations. These metrics are based on hard data points, such as emissions levels and charitable spending, which provide an objective view of ESG performance.
The original article can be accessed here.