By Zachary Barker
In the past several years, the investment management industry has seen the tremendous growth of mutual funds that invest according to principles of socially responsible investment (SRI). What is missing from this growing sector, however, is any oversight as to whether these funds actually accomplish their socially conscious mission. With the Securities and Exchange Commission reluctant to police “social disclosure,” the unregulated promises of these SRI funds present a significant consumer protection risk.
This Note proposes that existing securities laws provide a potential avenue to effective SRI fund regulation without the need for new regulatory action. The rules of fiduciary obligation for mutual fund directors imposed by § 36(b) of the Investment Company Act and the landmark decision Gartenberg v. Merrill Lynch Asset Management, which until now have largely been applied to funds’ financial performance, could easily be adapted by SRI fund investors to ensure a modicum of oversight for those funds’ social performance. State laws governing the management of public benefit corporations, which impose on directors a duty to disclose and compare corporate social performance, can provide potential principles for evaluating social performance.