A few years ago, The Onion lampooned rock icon Bono’s philanthropy by noting that he was tirelessly dedicating himself to ending Third World debt — no matter how many magazine covers he needed to appear on in the process.
Bono is still on his well-meaning, somewhat conflicted, and facile quest to fix the world. In January, the U2 front man and his business partners at private-equity firm TPG announced a new company called Y Analytics, which aims to quantify the value of social and environmental change created by investments.
“Math is music here,” Bono said. “If capitalism is to be a force for good we have to be able to measure when it’s doing good and when it’s doing harm, fuzzy thinking just won’t cut it. We need cold hard facts.”
While Bono is doubtless a more honorable man than the average celebrity virtue-signaler — and has certainly made a difference with his efforts to alleviate poverty in the developing world — his foray into the investment world promises to be a bit more complex than he appears to realize.
Bloomberg’s Matt Levine posed a few obvious questions. “Do you agree with Bono and TPG about what ‘social and environmental change’ is desirable? Do you agree with their methods of measuring it, and their results? A lot of responsible investing comes down to personal priorities and preferences, and efforts to create objective quantitative indexes of social goodness are mostly a category mistake.”
Companies such as Nike have been forced to confront these pickles before, such as when college students protested the low wages and dismal working conditions of people working in foreign factories producing their shoes and clothing. Nike responded by improving wages and seeking to improve working conditions, but it also closed several factories operating in countries where it could not enforce improved wages and working conditions.
A comprehensive social welfare metric would inquire as to what would happen to the men, women and children employed there — typically, these people do not win from the closure of such factories.
Presenting a social welfare metric as objective and the matter of simple arithmetic misrepresents the moral complexities facing us today. While those who support the creation of such metrics undoubtedly advocate from a good place, there simply is no consensus on many such issues that such metrics need to account for.
While many deride the focus that companies place on profits, or that governments place on economic growth, each does have the benefit of being straightforward to measure. Measurable benefits are needed to protect retail investors from the virtue signaling of institutional investors and proxy advisory firms.
Last year, two leading economists published research on “social justice” shareholder resolutions — including those on environmental, social and political issues — and whether they created value for stock-owners. They found that such resolutions produce no discernible benefit to shareholders. The findings are especially concerning when one considers how often proxy advisers recommend that their clients vote for the resolutions.
Those who feel compelled to “invest with their conscience” and are willing to take a lower return to do so certainly have that freedom, and they have many funds from which to choose. However, we cannot objectively quantify the social gains from socially-responsible investing. We can only quantify the internal costs of doing so, for better or worse. Pretending otherwise is a recipe for confusion.
Jared Whitley served as press liaison for Sen. Orrin Hatch (R-Utah) and as associate director in the White House under George W. Bush. He earned his MBA from Hult International Business School in Dubai.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.