In Milton Friedman’s famous New York Times piece, “A Friedman Doctrine—The Social Responsibility of Business Is to Increase Its Profits,” he argues that businessmen, particularly CEOs and heads of corporations do not have a general social responsibility. Friedman argues that the only responsibility that a CEO has is to his shareholders to increase profits. The CEO’s only social responsibility to society is to prevent harmful market effects, such as inflation. In this respect, shareholders should be responsible to donate their profits to different charities, as business merely serves as a conduit for the interest of the shareholders.
Milton Friedman is one of the greatest economists of all time; however, his picture of society is a little too perfect. His view represents an idea that individuals should be left to do what they want and that it would be ethically wrong for a person in a company to act against the shareholder’s interests, as they are an agent of the shareholders. So logically, Friedman is right. If we can’t nail down who can act with “social responsibility” or even what social responsibility is, then maybe it’s better left to shareholders to decide what they do with their money.
But what if an entire company was centered around social responsibility? What if the primary focus of the company was to ensure that money was being invested to benefit certain social goals, such as closing the gender pay gap, paying a fair wage to workers abroad and divesting from fossil fuels. Take Pact, for example, a clothing retailer that is committed to using organic cotton, mitigating its effect on the environment and paying cotton growers a fair wage. While the impact of organics can be debated, the desire and market for these goods cannot be underestimated. Companies like Pact are built off of the basis that individuals want to purchase a product that is produced in a socially/environmentally friendly manner.
Pact isn’t the only clothing vendor to focus on sustainable business practices, take Krochet Kids, a “social impact brand [that] empowers their artisans in Uganda and Peru not only through fair wages, but also through education.” Other brands include, Everlane, Shift to Nature and even Patagonia. Most of these companies have focused on making their business models ethically and environmentally friendly in response to the 2013 Rana Plaza garment factory collapse in Bangladesh that killed over one thousand people.
Clothing is one thing where, in theory, most of the elements of a sustainable clothing manufacturing operation are tangible and visible. Here, I can go to the store and purchase goods that were produced in a fair and ethical way. It’s clear to see how an individual can make a difference by buying these clothes. However, what if I wanted to invest my money in an environmentally friendly and socially responsible way? Investments are tricky; sometimes you may hand over your money to your money manager and then it’s lost to the ether. You could try building your own portfolio but that takes time and the companies you invest in may use fossil fuels or may not be profitable. What if there was another way to invest in a smart, yet responsible way?
Well, you’re in luck. In comes impact investing. Impact investing is a new term that is used to describe the “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside financial return.” Impact investing comes out of the divestment movement—which looks to remove fossil fuel companies from portfolios—along with the rising demand to hold companies responsible for their actions. The Global Impact Investing Network (GIIN), looks to direct attention towards the financial industry and the United Nations’ Sustainable Development Goals (SDGs). The SDGs are the next step from the Millennium Development Goals and look to increase gender equality, eradicate poverty, create sustainable cities and communities, as well as mitigate climate change. GIIN currently looks to promote investment in these fields and hopes to refocus the industry towards these goals. Due to the newness of impact investing, the market size has not been quantified. However, GIIN believes that there is significant potential from growth based on the data they have collected.
So how do you start impact investing? Luckily there are some simple ways you can start impact investing right this minute. State Street Global Advisors, the same company that commissioned the “Fearless Girl” statue on Wall Street, has a unique ETF called the SPDR SSGA Gender Diversity Index ETF—appropriately with the ticker SHE. According to State Street, SHE reflects the performance of State Street’s Gender Diversity Index, which “tracks the performance of U.S. large capitalization companies that are leaders within their respective industry sectors in advancing women through gender diversity on their boards of directors and in senior leadership positions.” Since its inception, SHE has grown by 15.03 percent.
Increasingly, companies are beginning to adopt socially responsible platforms both in their business models and as overall goals. Companies like Pact, Krochet Kids and State Street operate in ways that Friedman could have never foreseen. These companies do not act on the social agenda of one member, but rather as a unified group looking to further a specific cause. These companies have also capitalized on a growing market and consumer base that is genuinely interested in bettering society through business. If Friedman were alive today he may say, “The social responsibility of business is to increase profits, unless there’s a market for social responsibility.”
Sources:
“35 Fair Trade & Ethical Clothing Brands Betting Against Fast Fashion.” The Good Trade. Accessed April 22, 2017. http://www.thegoodtrade.com/features/fair-trade-clothing.
Friedman, Milton Friedman. “A Friedman Doctrine‐.” The New York Times, September 13, 1970. http://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html.
“Men’s, Women’s, and Baby Super Soft Cotton Basics | PACT Organic.” Wear PACT. Accessed April 22, 2017. https://wearpact.com/.
“SDGs .:. Sustainable Development Knowledge Platform.” Accessed April 22, 2017. https://sustainabledevelopment.un.org/sdgs.
“SHE: SPDR SSGA Gender Diversity Index ETF, ESG | SSGA SPDRS.” Accessed April 22, 2017. https://us.spdrs.com/en/etf/spdr-ssga-gender-diversity-index-etf-SHE?fundSeoName=spdr-ssga-gender-diversity-index-etf-SHE.
“SSGA Gender Diversity Index | SSGA.” Accessed April 22, 2017. https://www.ssga.com/global/en/products-capabilities/asset-classes/equity/ssga-gender-diversity-index.html.