This week the Washington Post pointed out that there were several proposals pending in Congress seeking to encourage the government to at least consider offering its employees a socially responsible investment option. The federal government offers employees the equivalent of a 401K plan through a fund known as the Thrift Savings Plan, which has over 3 million participants. Apparently in the same vein as socially responsible mutual funds, several members of Congress have offered proposals that seek to pave the way for the adoption of a kind of social investment option under the Thrift Savings Plan. However, unlike most socially responsible funds which screen companies for a of different issues ranging from their environmental policies to their behavior regarding employees, the Congressional proposals seem to be much more focused on single issues. Thus, one proposal would require Congress to determine the extent of Plan investments in companies whose business in Sudan directly or indirectly supported genocide in Darfar. Another proposal would authorize state and local governments to “direct divestiture from companies with investments of more than $20 million in Iran's oil and gas industry.”

On the one hand, attempting to create a social fund in the government context seems particularly challenging and problematic. As an initial matter, the focus on these single issues makes the funds appear more political than social. In this regard, one can argue that the proposals seem motivated by political agendas rather than a desire to enable government employees to engage in socially responsible investment. Then too, the problems with creating a social fund may be more acute in the governmental arena. Every socially responsible investment fund acknowledges the difficulty of creating such a fund. This is because corporations engage in a variety of different behaviors and screening corporate behavior involves judgment calls regarding the appropriateness of that behavior. And these judgment calls do not yield consistent results, as evidenced by the fact that there are corporations that appear in some socially responsible funds and not others. It seems that the problems inherent in creating a social fund would be magnified in the context of a government fund and the multiple political agendas of Congress. Indeed, efforts to generate some kind of social investment for federal government employees are not new. However, managers of the Thrift Savings Plan have resisted those efforts in the past, insisting that the Plan should focus only on financial concerns, and that its founding law requires it to resist the political manipulation of investments.

On the other hand, it seems that the public appetite for socially responsible investment is increasing, and it seems that government employees should at least be allowed the opportunity to make a choice about their investment options. Then too, while many funds focus on multiple social issues, others, like those contemplated by Congressional proposals, focus on single issues. Moreover, social responsible investing has its roots in a single issue—that is, screening for companies that supported apartheid in South Africa. Hence, the fact that Congress has chosen to focus on single issues does not make its objectives illegitimate. Then too, while creating a social fund is challenging in any context, it has not prevented several state governments from adopting such funds. Indeed, according to the Social Investment Forum, at least a dozen states offer their employees investment options that take social issues into account. As I have indicated in other posts, social responsible investment often appears to be an end in itself, enabling shareholders to signal their social preferences in the context of their investment decisions. However, it seems that in the governmental context, such investment has a greater potential to alter corporate behavior. From this perspective, while the challenges posed with screening individual companies should cause governments to tread cautiously, it seems appropriate for governments to at least be able to provide their employees the option of socially responsible investment.

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