Zelinsky on the Reality of ERISA Social Investing

Ed Zelinsky (Cardozo) has a thoughtful and provocative piece on the issue of social investing in the pension context.  Here's a snippet from the National Law Journal (subscription required):

Throughout the nation, activists understandably troubled by the ongoing tragedy in Darfur have pressed public pension plans to divest the stock of corporations with varying connections to Sudan. The impulse animating these divestment policies is commendable. After the Holocaust consumed European Jewry, the international community formally declared that no government would ever again be allowed to exterminate a people. Alas, even before Darfur, such anti-genocide avowals rang hollow.

In a similar vein, other equally sincere activists press public pension plans to jettison the stocks of corporations with ties to Iran. These activists often characterize their objective as "terror-free" pension portfolios.

These divestment proposals are the most recent manifestations of the program typically denoted as "social investing," the use of pension resources to accomplish political and ethical objectives. While the motivations of those seeking Darfur and Iranian divestment are beyond reproach, the tactic they pursue is not. Three inconvenient truths indicate that, however well-intended, social investing of governmental pension assets is at best ineffective and at worst costly to retirees and taxpayers.

Although such social investing may just lead to the transfer of equity ownership from those without moral qualms to those with them, I think the symbolic importance of divestment is understated in the article.  However, in the ERISA pension context, social investing must meet the same fiduciary standards as other investments, and it is more than questionable whether plan administrators' principles should be paid with the future retirement income of their participants and beneficiaries.

PS