21/09: The credit crisis and SRI
The chickens have come home to roost for our country’s most storied financial institutions, and for our financial regulators. Systemic investment in high risk securities, left unregulated and under-capitalized, has toppled the banking giants while regulators scrambled to bail them out. This debacle in business ethics has been unique in the degree to which the perpetrators lied to themselves as well as to the public, while regulators looked on in complicity. Leading financial institutions acted against their own self-interest by ignoring not only societal expectations, but the reality of their own financial positions as well. Of course, as we have seen in the national rash of foreclosures and economic downturn, the impact of their actions extended beyond the ruin of individual firms, and there are a few implications for SRI:
1) This is perhaps the largest and most glaring example of the financial materiality of social factors. Socially responsible investors who recognized subprime lending as predatory lending saw a red flag obscured for even our oldest and most successful financial institutions by a smokescreen of investor optimism and complex financial engineering.
2) In the face of such colossal failure by financial institutions to self-regulate and the obvious negative results for businesses and the economy, the public has more reason than ever to question the neo-liberal ideology that universally frowns on government regulation (despite the insistence even now of its proponents that regulation is not the answer). Opportunity is widening for a new economic paradigm that addresses the weaknesses of both Friedman and Keynes, and the CSR movement is enjoying global momentum and influence that ensures us a loud voice as this paradigm takes shape.
1) This is perhaps the largest and most glaring example of the financial materiality of social factors. Socially responsible investors who recognized subprime lending as predatory lending saw a red flag obscured for even our oldest and most successful financial institutions by a smokescreen of investor optimism and complex financial engineering.
2) In the face of such colossal failure by financial institutions to self-regulate and the obvious negative results for businesses and the economy, the public has more reason than ever to question the neo-liberal ideology that universally frowns on government regulation (despite the insistence even now of its proponents that regulation is not the answer). Opportunity is widening for a new economic paradigm that addresses the weaknesses of both Friedman and Keynes, and the CSR movement is enjoying global momentum and influence that ensures us a loud voice as this paradigm takes shape.
