Sunday, November 8, 2009

Putting Your Money Where Your Mouth Is: A Quick Primer on Socially Responsible Investment (SRI)

It may come as a surprise that you can make money while supporting efforts to make the world a better place: those of us on the political left tend to think of social good as a fundamentally non-profit endeavor and view corporate profits as fundamentally irresponsible. But in fact, there are a wide range of mutual funds geared towards Socially Responsible Investment (SRI), and their number and strength is only growing.

1. Why go SRI?

SRI is the very definition of working within the system to effectively enact change: in addition to providing capital to virtuous (and potentially undervalued) companies, the managers of SRI funds can use their votes at shareholder meetings to directly affect the practices of their companies. This fall, for example, a group of 181 investors managing more than $13 trillion in assets signed an agreement to support efforts to fight climate change.

Nor do you necessarily have to take a financial hit with SRI: by avoiding large banks and focusing on smaller, more responsible companies, the Appleseed Fund (among many others) managed to significantly outperform the market over the last year. In fact, environmentally conscious funds are in a unique position to take advantage of future trends. Today’s economy and global situation combine to create a particularly ideal opportunity for investment in sectors like alternative energy and water management: stock prices are relatively low due to the recession and the smaller size of the companies involved, but are likely to appreciate significantly over the next few decades as the effects of climate change and water shortages become more prevalent.

2. Types of Funds

There is a difference between funds that exclude companies based on certain criteria and funds that actively seek to make a positive difference in the world by investing in sectors that have socially or environmentally responsible goals.

The first kind have been around for some time, and usually focus on excluding companies that deal in tobacco, alcohol, nuclear energy, armaments, gambling, and other industries deemed socially undesirable. Often, they will employ both negative and positive screens in their attempt to steer money away from companies that do harm. These sorts of funds are an excellent choice for people who want to limit the harm that their money can do in the world without sacrificing the relatively assured gains that come from mainstream investing.

However, there are some problems with this SRI approach. Many seem to follow the guidelines published by the U.S. Conference of Catholic Bishops, which prohibits investment in companies involved with abortion. Also, these funds might invest in companies that take a more responsible approach to their business than their competitors, but are still in fields (such as oil drilling) that may not be part of the future we would like to create. Of course, since mutual funds necessarily hold stock in a large number of companies, no portfolio will be perfect – we must always accept some compromise, and even just the elimination of the most egregious abusers goes a long way towards responsibility.

Some examples in this category include the Domini Social Equity Fund (DSEFX), Appleseed Fund (APPLX), and AHA Socially Responsible Equity (AHRAX).

The second type of fund (though there is no sharp division) takes a more direct approach towards social change. Often this means zeroing in on a particular industry (like alternative energy or clean water production) that provides the opportunity for profit while advancing an important cause. At other times, it simply means screening more proactively for companies attempting to affect positive social and environmental results.

Examples of this type of fund include Calvert Global Alternative Energy (CGAEX) and Global Water Fund (CFWAX), Robeco SAM Sustainable Climate Fund (SMCNX), Pax World Global Green Fund (PGRNX), and the Winslow Green Solutions Fund (WGSLX) and Green Growth Fund (WGGFX).

3. Resources

•The Social Investment Forum provides perhaps the single most useful center of information, including a sortable list of several hundred SRI mutual funds.

Social Funds claims to be the largest personal finance site devoted to socially responsible investing, and it’s hard to argue with that. In addition to providing reports on hundreds of companies, they maintain a variety of news pages and publish a guide to SRI mutual funds.

•The GreenMoney Journal: From the Stock Market to the Supermarket is a publication dedicated to assessing and promoting green investments. Their print version costs $25 a year, but they run a free quarterly E-Newsletter.

•In addition to reporting on sustainable business in general, runs a publication called Progressive Investor that’s pricey enough that I haven’t taken the plunge, though it comes well-recommended.

•The Environmental News Network reviews Ten New Green Mutual Funds.

Caveat: Though the above represents the summary of a few hundred hours of work, please note that I’m not a financial professional in any way. There’s a world of information out there, and I’ve intentionally skipped a great deal of it and no doubt unintentionally skipped far more. This post is but a tiny fraction of the information needed to justify an investment: always do as much research as possible and confer with a financial expert before making any substantial commitment.


  1. Please note the ticker for The. Appleseed Fund is APPLX.

  2. Whoops! Thanks for the catch. Guess I got confused by Apple computer (AAPL)

  3. Good overview on SRI. You might want to add my site as a resource for your readers on this subject. is one of the world's leading sites on SRI news and research.

    I got interested in ethical investing some forty years ago as I believed that when we invest in a company we share in the responsibility for the activities of the company as well as participate in the outcomes of the company's activities. Therefore anyone valuing their personal or spiritual growth has to take these things into account when investing.

    I also believe that if everyone does invest according to their personal values, then, since so many of core values are alike -- and are supportive of higher ideals -- that in the long run, only companies employing these higher values will truly prosper.

    Best wishes, Ron

  4. Really interesting stuff.

    Didn't know about SRI until now, thanks for the crash course!

  5. Great post! Its good to know that at least some people out there are doing business with the Earth in mind.

    @Ron. What does your site mean by investing for spiritual reasons? And, how is that different than ethical?