The following is in response to the ongoing exchange of letters regarding socially responsible investing:

Dear Editor,

In reading through the various letters to the editor responding to Adam Jared Apt’s article of May 21, Measuring the Cost of Socially Responsible Investing, an important issue has been overlooked. Apt referenced a generic methodology published by Adler and Kritzman in 2008 that purports to estimate the opportunity cost to active management of excluding stocks from an investable universe. Apt also referenced recent presentations by Krtizman at a meeting of analysts in Boston and at Middlebury College at which Kritzman explicitly stated that the cost of fossil-fuel divestment was hundreds of millions of dollars.

What Apt did not report is that Kritzman verbally confirmed that this seemingly outrageous cost amounted to a mere 0.3% of annualized incremental return over the period. This figure is “in the noise” — that is, statistically undetectable without the aid of thousands of data points from a mathematical simulation. What is more unfortunate, however, is that the data Kritzman provides for the cost of divestment is off by a factor of 2. His cost computation of $270 million (referenced by Apt and others) excludes 20% of the investable universe – but the entire energy sector in the world is half that number!

Kritzman (and by extension Apt) talk in general about socially responsible investments without clarifying that the estimated cost of divestment of fossil-fuel producers must max out at half the quoted $270 million figure. When the top 200 fossil fuel companies on Carbon Tracker’s divestment list (less than 5% of the universe) is considered, then the cost estimate drops to a quarter of the quoted figure. When other lists, such as Swarthmore College’s sordid 16, are considered, the potential cost of divestment becomes negligible and is essentially zero for practical purposes.

Regardless of what one believes about Adler and Kritzman’s approach, misrepresenting the cost of divestment creates confusion and does serious disservice for investors and their fiduciaries.


Julie N.W. Goodridge, President and CEO

NorthStar Asset Management, Inc.

Christine Jantz, CFA

NorthStar Asset Management, Inc.

NorthStar Asset Management is a Boston-based financial services firm specializing in socially responsible investing.