Being Virtuous and Prosperous: SRI's Conflicting Goals

37 Pages Posted: 30 Aug 2009

See all articles by Wesley Cragg

Wesley Cragg

York University - Schulich School of Business

Benjamin J. Richardson

University of Tasmania - Faculty of Law

Date Written: August 29, 2009


Can SRI be a means to make investors both virtuous and prosperous? This paper argues that there are significant tensions between these goals, and that SRI should not allow the pursuit of higher investment returns to prevail over an ethical agenda of promoting social justice and environmental protection.

The discourse on SRI has changed dramatically in recent years to the point where its capacity to promote social emancipation, sustainable development and other ethical goals is in jeopardy. Historically, SRI was a boutique sector of the market dominated by religious-based investors who sought to invest in accordance with the tenets of their faith. From the early 1970s, the aspirations of the SRI movement morphed significantly in the context of the divestment campaign against South Africa’s apartheid regime. No longer were social investors satisfied just to avoid profiting from immoral activities; instead, they also sought to change the behaviour of others.

It was not until the late 1990s that the mainstream financial sector, particularly institutional investors, began to treat SRI as a legitimate investment strategy. However, with the 'mainstreaming' of SRI, its aspirations have shifted from ethical investment towards a business case approach to responsible investment. In this guise, SRI is championed primarily as a means to be prosperous rather than virtuous. Social and environmental issues are at risk of being marginalized if they are not perceived by investors to be 'financially material.' Business case SRI is a problematic benchmark for several reasons: often there is a countervailing business case for financing irresponsible activities, given the failure of markets to capture all social and environmental externalities; secondly, even if investors care about such concerns, there may be no means of financially quantifying their significance for investment purposes; and, thirdly, even if such factors can be financially quantified, they may be deemed to be such long-term financial costs or benefits that they become discounted and ignored.

The ethics case for SRI and ethical business practices more generally takes the view that both investors and the companies they fund have ethical responsibilities that trump the pursuit of profits. Ethical investment should be grounded on this foundation. However, it may not be enough. To keep ethical investment ethical will likely require institutionalizing new norms and governance standards, in such domains as reforming fiduciary duties and the internal governance of financial organizations. SRI’s own codes of conduct including the UNPRI have yet to demonstrate the robustness to move the financial community beyond business-as-usual.

Keywords: Socially responsible investment, business ethics, fiduciary duties

JEL Classification: G18, G38, K20, K32, M14

Suggested Citation

Cragg, Wesley and Richardson, Benjamin J., Being Virtuous and Prosperous: SRI's Conflicting Goals (August 29, 2009). Available at SSRN: or

Wesley Cragg

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
416-736-2100 (Phone)
416-736-5762 (Fax)

Benjamin J. Richardson (Contact Author)

University of Tasmania - Faculty of Law ( email )

Private Bag 89
Hobart, Tasmania 7001


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