The infamous $100 billion company of 2000, Enron Corporation, was named “America’s most Innovative Company” for six consecutive years before it declared bankruptcy in 2001. It was revealed of practicing systemic and creatively planned accounting fraud. It also caused dissolution of its auditor’s, Arthur Andersen. Enron was part of the respected Domini 400 Social Index, and the also nation’s oldest socially responsible fund – Pax World Balanced Fund had it as top holding. So, how did ethical investing professionals got entangled with such an unethical company? This had made Social-Responsibility Investing (SRI) Funds community to revisit the drawing board and do a postmortem. Concerns were raised on the accounting practices, roles of Auditors and Board members. The caveat to investor was that just because a company shows up on the SRI index does not mean it is a good investment. Calvert SRI Fund was holding Enron in its portfolio even though they had raised the concerns to Enron on its environment impact and human-rights concern as Enron officials showed willingness to address the problems. It had eroded investment value for many of the investors.
Till today even though there has been increase in vigilance, cautiousness, and regulations, the scandals continue to happen on regular basis. Due to unethical cases getting reported on regular basis, the investors are increasingly looking to align themselves with companies they believe are transparent in their business practices and serve a greater social purpose. While ideally there are no perfect companies, the need is to look for business those are heading in right direction while positively investing in Environmental, Social and Governance (ESG) ensuring their sustainability and improved ethical impact over the long term.