Investors

So does CSR pay? Well…. let's start with the easy bit. Unethical behaviour often doesn't, as Merrill Lynch found when it had to fork out a $100m fine following investigations by the New York State Attorney into its dodgy investment advice. (At least they weren't hyping SRI funds.) But consider this: The Observer newspaper's Money Magazine has created a tongue-in-cheek 'Sindex' of the 25 top 100 firms excluded from the FTSE4Good index. They outperformed the other supposedly good 75 companies by 13 percentage points last year and by 16 points over three years. You have to go back ten years to find the saints outrunning the sinners.

Actually, for every study showing a CSR payback (and we've reported a fair few in our time) there's another saying the causal link is not statistically proved. Most of the apparent gains can be accounted for through different sector weightings. For example, SRI funds that were overweight in technology shares (perceived as relatively neutral in social and environmental impacts) were performing relatively well, until that sector crashed.

So where does this leave the case for CSR and SRI? At company management level, acting responsibly towards your various stakeholders can contribute, more likely than not, towards longer term business success - all other things being equal. The fact it they rarely does - like dot.com bubbles bursting - should not deter you from trying. You may at least gain some short-term competitive advantage over others in your sector.

For an 'ethical' investor, the case also remains strong, but it's not a financial one. After all you are mainly concerned that your money should not be misused against your principles. And the good news is that volatility and risk levels in SRI funds are not proving significantly above average, so in the long term you are not at a real disadvantage to the rest of the market.

The people who lose out in this analysis are the amoral investors, who think investing in socially responsible companies is the route to above average returns. The ABI and the rest can try to set standards, especially on risk, and urge 'engagement' by their members. But ultimately, the statistics tell us that it's a zero sum game. By far the strongest element in performance are industry trends, not marginal differences between companies within a sector.