Mainstream investors are reportedly only interested in environmental, social and governance (ESG) issues that will have a “material” impact on the company (higher or lower profits) — more specifically a near-term impact. On the other hand, traditional ESG investors do not want to invest in companies that have a negative impact on society or the environment — that are a risk to the community and ecological balance, not just to that company.

Social investors often assert that companies that manage their social and environmental responsibilities will ultimately do better financially. Sometimes it turns out, however, that the negative ESG risks are not material risks to a company in the short term.

Laws and regulations have not caught up with the latest externalization of impacts. Even where they have caught up, the legal costs and regulatory fines are often minimal as a percentage of revenues that can be obtained by ignoring and externalizing these impacts.

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“Finally, I hope that the great thinkers here will dedicate some time to finding ways for businesses, governments, NGOs, and the media to create measures of what companies are doing to use their power and intelligence to serve a wider circle of people.” — Bill Gates at Davos, Switzerland, “Creative Capitalism,” January 24, 2008

Mr. Gates appears now to be joining the social investing movement. What a welcome development! He wants measures because he wants recognition for these activities, because recognition brings rewards to companies: inspired employees and public approbation. And I would add: social investors investing for the long-term. His speech calls on companies to do what social investors have been asking companies to pay attention to and what KLD has been measuring for many years — the social and environmental impact of corporations, especially on low-income groups.

Microsoft Corporation’s efforts to expand its beneficial impacts for low-income citizens beyond philanthropy into its business model are recent, as Mr. Gates acknowledges in his Davos speech. These efforts are recognized by KLD in our company profile of Microsoft. KLD’s evaluation of Microsoft’s efforts is that the company is not yet a leader in this regard, but it is making a start.

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Reflections from the meeting of the International Working Group (IWG) of the Social Investment Forum, meeting at the Santa Ana Pueblo, New Mexico, Nov 2-3, 2007.

“We are all indigenous peoples,” said Larson Bill, a leader of the Western Shoshone. “Some of us have preserved the knowledge longer.” He went on to say that “climate change” hit the first peoples of North America in 1492, with the results of destroyed environment and human lives, forced migrations, and cultural devastation.

Larson believes that some indigenous peoples have preserved enough of the knowledge so that there is still time to share it for the sake of all of us now experiencing climate change.

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