Investing

Socially Responsible Investing Isn't Just for Cranks

Especially if you're an activist with actual activism skills, like Jana Partners.

A good niche.

Photographer: George Frey/Bloomberg via Getty Images
This post originally appeared in Money Stuff.

There's a frustrating terminological imprecision in the phrases "shareholder activist" and "activist shareholder." There are two quite separate kinds of activist:

  1. One kind wants companies to make more money by being meaner: They call for efficiencies, stock buybacks, mergers, less spending on perks, etc. This stuff is often stereotyped as enriching shareholders at the expense of workers and other stakeholders, and as harming long-term value by focusing on short-term stock-price results. 
  2. The other kind wants companies to make less money but be nicer: They call for more social responsibility or environmental studies or other things that might reduce returns on investment (at least in the short term) but achieve broader social goals.

The two kinds tend to agree on some corporate-governance issues (nobody likes staggered boards), but otherwise they are not so much opposed as they are unrelated. They focus on different issues and do different things. Activists of the first type tend to be big hedge funds who take concentrated positions in order to effect big changes; they do their activism via proxy fights and takeover contests and excoriating public letters and private lobbying of other big shareholders. Activists of the second type were traditionally small and sort of crankish -- retired retail shareholders, religious orders -- and did their activism across many companies via 14a-18 proxy proposals and rambling speeches at shareholder meetings. But that is changing as enormous pension funds have become more interested in environmental and social issues. There is an opening for type-2 activism as a business, for activist funds focused not on economic efficiency but on long-term environmental and social stewardship.

So here you go:

Jana Partners LLC plans to launch a new fund this year dubbed Jana Impact Capital to invest in companies the hedge fund believes are good bets but could do better for the world. The fund’s board of advisers includes Sting and others who have a track record of pressuring companies on environmental, social and governance issues.

Socially responsible investing, long the territory of smaller gadflies, has grown in popularity in recent years. The presence of Jana—one of the most well-known activists on Wall Street—boosted by Sting is expected to lend even more legitimacy to the idea.

Jana's first project in this vein is to join with the California State Teachers' Retirement System to badger Apple Inc. "to develop new software tools that would help parents control and limit phone use more easily and to study the impact of overuse on mental health."

It's a good niche! For one thing, socially responsible investing is hot these days, but there aren't too many social-responsibility activists with actual activism skills, so it makes sense for Jana to step in to meet the demand. (Though the fund "won’t seek to charge the kind of high fees the hedge-fund industry is known for.") Also there seems to be a synergy with Jana's other, type-1 activism. Calstrs and other big influential public pension funds tend to be fond of type-2 social-and-environmental activism without necessarily having much love for type-1 breakups-and-buybacks activists. This fund could bridge the gap: If you work closely with people like Calstrs to keep iPhones out of the hands of children, they might be more inclined to vote with you on your next proxy fight demanding that a company break itself up.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Matt Levine at mlevine51@bloomberg.net

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    James Greiff at jgreiff@bloomberg.net

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