For anyone following the financial news cycle, it’s hard to miss the increasingly heated debate around sustainable, responsible, and impact (SRI) investing. Detractors—often speaking from an ideological position on the right—argue that SRI promotes progressive values in corporate boardrooms. Supporters counter that these strategies have generally performed in line with traditional portfolios while helping to create positive environmental and social outcomes through practices such as shareholder engagement.
As this ideological tug-of-war plays out among pundits, one essential reality gets lost: the status quo of our investment system. The modern financial industry, whose contours formed in the early 20th century, rarely undergoes scrutiny. Consequently, many investors participate in a system they would likely find deeply troubling if they understood its underlying dynamics.
A BROKEN SYSTEM
It’s worth taking a moment to acknowledge the flaws baked into our capital markets system and how they create perverse incentives for corporate leaders and policymakers. At the center of it all is a simple mandate: the system encourages profit above all else. Full stop. This imperative was cemented in 1919 when the Michigan Supreme Court ruled against Henry Ford, who sought to raise wages and lower prices in lieu of paying a dividend to shareholders. The court ruled that Ford’s priority must be maximizing investor returns, and any action that diminished profits, even for the broader good, was deemed a violation of his duty to shareholders.
To many at the time, this sounded reasonable, and the ruling quietly settled into legal textbooks, ignored by everyone save first-year law students. But its consequences have echoed throughout the past century as corporate leaders have been compelled to impose harm on people and the planet in service to shareholder profit.
Consider a hypothetical example: a petrochemical company that produces toxic byproducts must choose between spending the money to dispose of them safely or releasing the chemicals into a local water supply and paying the resulting fine. If the cost of proper disposal exceeds the fine, dumping the waste improves short-term returns for shareholders. The executive responsible may understand the public health consequences and may even feel personally disturbed by them—but his or her obligation is to shareholders, not to the families who will be drinking contaminated water.
BLAZING A NEW TRAIL
This is the incentive structure that traditional investing creates, and the vast majority of individuals with brokerage accounts or 401(k)s unknowingly reinforce it. Pay women less than men for the same work? Sure. It cuts costs and boosts profits. Emit gigatons of carbon despite knowing the long-term consequences for the climate? Why not? As long as it increases shareholder value. Nearly every news story about abhorrent corporate behavior can be traced back to these distorted incentives. Fortunately, a growing movement is pushing back on this structure, and if you’re a Natural Investments client, thank you for already being part of it! As of 2024, roughly $6.5 trillion— about 12 percent of global investment capital—is now invested in SRI strategies. That’s a large enough bloc of investors to send a clear message to corporate leaders: pursue profit, but not at the expense of people and the planet. Companies know that if they pollute water, underpay disadvantaged workers, or contribute to climate change, they risk losing access to a meaningful pool of global capital. And that can be enough to incentivize better behavior.
Traditional investing often places shareholders and society at odds. SRI seeks to align the interests of people, the planet, and profit. And contrary to persistent assumptions, SRI does not require sacrificing financial returns. In fact, the shift toward longer-term thinking has often improved company performance. Thousands of academic studies support this, showing that SRI strategies are fully capable of delivering competitive returns while encouraging better corporate behavior. It is, in many ways, a win-win.
EXPANDING YOUR POWER
But the work is far from finished. If 12 percent of global capital is already generating better outcomes, imagine what happens when that number grows to 30 percent or 60 percent. One of the most meaningful opportunities any of us have to effect positive change is to help grow this movement. Many people would prefer not to be unwitting participants in an unjust system—they simply need to understand how the system works today and to be offered a practical, values-aligned alternative.
This is our mission at Natural Investments. If you find yourself frustrated by worker discrimination, environmental degradation, or corporate misconduct, help us expand the SRI movement. Share what you’ve learned. Tell friends and family that there is a better way. And if they want their investments to support a more just and sustainable world, we would be honored to guide them.