How to decide if matching your money with your values makes financial sense

The term "socially responsible investing" often makes people think of divesting assets from certain countries or avoiding putting money into military companies. While it does include those efforts, it also encompasses much more: Shareholders who invest in companies they want to change from the inside. Investors who practice "positive" screening, where they put their money only into companies that promote values they support. Funds that invest in local communities that lack resources. "You're incorporating your values, be they political, cultural, or even religious, into how you direct your money and what it does for you," says Ian McLeod, an investment adviser at the Berkeley-based Social Equity Group, which specializes in socially responsible investing.

In fact, socially responsible investing, often referred to as SRI, has grown so much over the past decade that the industry group Social Investment Forum estimates it accounts for 1 out of every 9 dollars that is professionally managed in the United States today. But some consumers hesitate to put their money into socially responsible funds because they worry that the funds won't perform as well as mainstream ones or they're not sure how to get started. Here are questions and answers to help you decide if socially responsible investing is right for you.

Do socially responsible funds perform as well as other funds?

This question has been the subject of much research, and while it's hard to draw a final conclusion since there is so much variety in types of funds and time periods, the answer seems to be that any difference is a small one. "I always say, any differences in the performance because of the SRI part aren't worth worrying about," says David Kathman, mutual fund analyst at Morningstar. He adds that the funds may perform slightly differently from mainstream ones, but he hesitates to say one is better or worse. Many SRI funds, for example, have more technology stocks than manufacturing and industrial stocks for environmental reasons, for example. That means that when the technology sector is doing well, those funds will do well, and vice versa.

Some investors take a longer-term view. "I firmly believe in the future of organics. How many more food scares do we need?" says Cliff Feigenbaum, founder and publisher of the Santa Fe-based GreenMoney Journal , a newsletter on socially responsible investing. Oil companies, meanwhile, will most likely continue to bring in big profits in the short term while the green industry matures, but that doesn't mean he wants to make money off of it, or from profitable defense companies.

Do socially responsible funds tend to have higher fees?

They do tend to have slightly higher expenses, says Kathman, because the companies are so intensely screened. And SRI funds tend to be smaller, which also puts upward pressure on expenses. But Kathman adds that there are inexpensive SRI funds, such as those offered through Vanguard.

I don't have a ton of money to invest. Can I still make a difference?

Many SRI funds have low minimum investment amounts, making it easier to get started. But investor power doesn't come from sheer dollars alone; shareholder activism, where investors lobby a company to change its behavior in some way, also plays a role. Calvert Investments, one of the largest socially responsible investment companies, files 25 to 35 shareholder petitions a year on topics ranging from board member diversity to sustainability.

Does investing in a socially responsible way really have an impact on companies?

Companies certainly pay attention to their investors; Calvert's Web site lists successful petitions on executive compensation, responsible lending practices, and sustainability, among others. In 2007, Calvert filed resolutions with five airline companies, including United Airlines, Jet Blue, and Southwest, to ask them to produce sustainability reports that explain how they address environmental issues. Four of them have already issued the reports. "We believe it spurred these companies to develop their [environmental] policies and programs," says Stu Dalheim, Calvert's director of shareholder engagement.

How do I get started?

The first step is to decide what types of companies you want to invest in, says Feigenbaum. He recommends asking yourself, "What do you want to profit from? What don't you want to profit from?" Some people are sticklers for avoiding tobacco companies but are comfortable investing in ones that sell alcohol, for example.

McLeod says that while he encourages clients to avoid companies they don't like, he also recommends keeping as broad based a perspective as possible. "You take on too much risk if you want to cut out 90 percent of companies," he says. For investors investing less than $50,000, he also suggests sticking with SRI index funds rather than individual companies, to ensure enough diversification. Since most people invest primarily through their 401(k) retirement accounts, McLeod suggests asking the human resources department at your company to add SRI options if there currently aren't any.

 

 

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Investing - Should You Invest in Socially Responsible Funds

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