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Can You Afford to Be Socially Responsible?

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In recent years, social responsibility in investing took the investment world by storm. But now that the struggling financial system no longer enjoys access to tons of cash and easy credit, will investors decide that socially responsible companies aren't the right place to put their money?

Many investors try to make a difference by putting their money where their mouths are on social issues. According to one estimate, $2.7 trillion was invested using some type of socially responsible strategy in 2007. More than 250 mutual funds screened stocks using socially responsible criteria.

Critics argue that being socially responsible with your money simply means giving up return. By filtering out companies that don't meet your investing guidelines, you miss out on many profitable investing opportunities -- ones that could make the difference between gains and losses for your portfolio.

But a blanket condemnation of socially responsible investing is silly -- simply because there are so many ways to do it.

50 ways to invest your money
Socially responsible investing means different things to different people. Some look to renewable energy and recycling. Others look for companies that promote social issues that are important to them, from encouraging healthy eating practices to supporting emerging-market economies abroad. Still others want companies that support employees and their communities through charitable work and giving.

As a result, depending on what type of screen you use, the companies you'll invest in will differ greatly. Companies such as Chipotle (NYSE: CMG  ) and Whole Foods (Nasdaq: WFMI  ) don't just have a commitment to high-quality food -- they also treat their employees well.

On the other hand, you might be surprised at some of the companies that pass screens. Even much-maligned Wal-Mart (NYSE: WMT  ) has incorporated green-friendly measures in its stores. Starbucks (Nasdaq: SBUX  ) pays above-average prices for coffee beans.

Socially responsible mutual funds see the same variations in investing styles. The Pax World Growth Fund (PWGIX), for instance, includes shares of Nike (NYSE: NKE  ) , National Oilwell Varco (NYSE: NOV  ) , and Baker Hughes (NYSE: BHI  ) among its holdings -- companies in industries where you might not expect to find many companies that pass Pax World's test by "meet[ing] positive standards of corporate and environmental responsibility."

Smart business
Some also complain that socially responsible companies don't put shareholders first. As a result, you can't expect to get returns that are as strong as a company that puts all of its emphasis on the bottom line.

Obviously, if a company gives a penny of every dollar of earnings toward worthy causes, either within the company or outside it, that's one less penny for shareholders. The question, though, is whether those actions pay long-term dividends.

In my view, the answer is clearly yes. When companies promote their good acts, they create goodwill among customers. In many ways, corporate social responsibility is a more efficient form of advertising. Rather than putting together an attractive marketing campaign that may lack substance, a company that makes a contribution to its community shows that actions speak louder than words.

Share your views
At The Motley Fool, philanthropy and social responsibility are front and center right now, as we celebrate the power of investors to do good with our 2008 Foolanthropy campaign. With the problems of the past year caused in large part by people not understanding money matters well enough to avoid financial disaster, we're keeping our focus on improving financial literacy across the nation -- in the hopes of avoiding a repeat of the mortgage mess in the future.

As the financial markets continue to deal with uncertainty, it's tempting to tighten your belt in any way you can. If socially responsible investing is important to you, however, don't feel that you need to give up on it. During tough times, the investments that corporations make in their communities will pay even greater dividends.

Foolanthropy 2008 is off and running! Vote for your favorite charity and learn more here:

Thanks for your support!

Fool contributor Dan Caplinger is an omnivorous investor, but he supports socially responsible companies. He owns shares of Starbucks. Wal-Mart and Starbucks are Motley Fool Inside Value recommendations. Chipotle Mexican Grill is a Motley Fool Rule Breakers selection. Whole Foods, Starbucks, and National Oilwell Varco are Motley Fool Stock Advisor selections. The Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy is responsible to you.

Read/Post Comments (2) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 06, 2008, at 10:23 AM, sarahewing wrote:

    I work for ShoreBank (a triple bottom line community development bank based in Chicago) as their Online Channel Manager. So many reports that I read confirm that banks which focus on community development and environmental sustainability have performed above market average. This financial crisis has certainly made consumers far more aware of what banks do with the money that is deposited in their accounts. Not only that, but people are trending towards green banks ( What does that mean for socially responsible investing? My bank's executives are currently blogging their thoughts on its impact ( It just goes to show that even if you are risk averse and don't want to try to invest in a socially responsible company's stock, you can still invest in low risk socially responsible alternatives, like a bank account.

  • Report this Comment On November 08, 2008, at 3:15 PM, BillDSRI wrote:

    What I appreciate about your article Dan is highlighting the fact that there are so many ways to invest under the term socially responsible investing. When SRI was in its early days, say back in the early 1990s, investors did not have many choices among mutual funds. But today you can find funds using screens of one sort of another in 26 different categories, including specialty funds, target-date funds and bond funds. Additionally, in my socially responsible investing site at ( I often try to make the point that there is no single model that one can highlight as "the" socially responsible investor. It's all about feeling good about where your money is invested, based upon your personal principles, in addition to seeking maximum return. Nice overview!

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