Life Sciences and Socially Responsible Investing

Although loaded with contradictions, biopharmaceutical-based socially responsible investing is picking up pace in the market
Dec 01, 2007
Volume 20, Issue 12

Brian O'Connell
Whether or not global warming and the whole "going green" initiative will save the world—or bankrupt it—is a question I'll leave to the philosophers, or to Al Gore, appearing soon in his gas-guzzling private jet on an airport tarmac near you.

From an investing point of view, as I've said in these pages before, the only green that matters is the paper-based variety with pictures of dead presidents on the front and the line "In God We Trust" etched on the back.

So, the question today is: does that kind of green come into play in the burgeoning world of green, or socially responsible investing (SRI)– particularly in the life sciences sector?

First, some back story. SRI is nothing new. The modern roots of it can be traced to the impassioned political climate of the 1960s. During that decade of political and social turbulence, issues like civil and women's rights, the anti-war and environmental movements, generated a new kind of awareness about the issues of social responsibility. These concerns eventually branched out to include management and labor issues, anti-nuclear sentiment, and the care and nurturing of the environment. By the late 1970s, SRI began attracting a significant group of American investors as a result of serious concerns about the racist system of apartheid in South Africa.

Over the past 20 years, the Bhopal, Chernobyl, and Exxon Valdez incidents, along with concerns about global warming, ozone depletion, and the environmental risks of many corporate practices, have made environmental issues almost as important as bottom-line returns in social investors' minds. Most recently, human rights issues and the lack of healthy working conditions in factories around the world producing goods for US companies have turned into major stumbling blocks for investors.

Many socially responsible portfolios have moved beyond selecting companies that are working to limit or cease their negative environmental and social impacts to choosing companies that are actively working to improve their social and environmental performance. At the same time, there seems to be a growing understanding among corporate leaders that the incorporation of socially responsible practices into their corporate strategies can co-exist with long-term corporate profitability. Increasingly, corporations that reflect principals of corporate responsibility are considered to have substantial long-term investor value. Both actively managed mutual funds and indexes have been developed to track stocks in these areas.

Socially responsibly investing, however, does not mean having to accept slower asset growth. In fact, the case is quite the opposite. The growth of assets involved in SRI have often outpaced the broader market indexes. Socially responsible investment assets grew at twice the rate of all assets under professional management in the US. Between 1997 and 2006, total assets involved in SRI grew 82%—from $1.185 trillion to $2.16 trillion. In the same period, according to a comparison of total assets under professional management in the US reported annually in Nelson's Directory of Investment Managers, the broad market grew 42% (including both market appreciation and net cash inflows).


So, does the biopharmaceutical market take a seat in the social investment party? By the most common definition of so-called ethical investing, yes it does. Let's have a look.

According to Amy Domini, founder and president of the Domini Social Equity Fund, SRI is based on three main premises:

1. Every investment, whether in stocks, savings accounts, or bonds, has a social and ethical dimension.

2. Investors can apply their social and ethical standards to potential investments.

3. Investors who apply social and ethical criteria to investments do not have to sacrifice performance.

Under these three themes, investing in the life sciences sector, from a social screening standpoint, has its advocates and its critics.

As Domini puts it, in an article entitled "Socially Responsible Investing: Perspectives on Biotechnology" on her web site (,

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