Hinging Hopes on Faith-Based Investing

The religious brand of faith-based investing fits into the general universe of socially responsible investing. However, the entirety of socially responsible investing requires a good deal of faith in the non-spiritual sense of the word, too. Socially responsible shareholders have to believe that over the long haul, stocks of good companies will prove to be good investments, financially and otherwise.

The basic definition of faith is belief in something even though there's little or no concrete proof available. However, in the case of the viability of socially responsible and sustainable investment, proof is emerging. New research from Harvard Business School shows that sustainable investing bears fruit for investors with the patience of Job.

Long-term outperformers
According to Robert Eccles and George Serafeim, the authors of the Harvard Business School study, sustainability-focused companies outperformed their peers over an 18-year period. The study tracked 180 total companies; the 90 companies that had implemented environmental and social responsibility initiatives grew each dollar invested since 1993 to $22.60 by 2011. Every dollar invested in companies that hadn't made this emphasis in their businesses grew to just $15.40 in that same time frame.

In a Bloomberg interview, the authors pointed out that this kind of investment strategy doesn't pay off in the short term, which probably explains why so many investors disregard socially responsible investing out of hand. It might take several decades for the strategy to bear fruit.

The authors didn't reveal the list of companies they defined as "high sustainability" or "low sustainability," but we investors can cull many resources to try to figure out companies that have put sustainability high (or low) on their corporate agendas.

The Dow Jones Sustainability Index has identified PepsiCo (NYSE: PEP  ) , Pearson (NYSE: PSO  ) , and Roche as 2011-2012 "supersector leaders," for example.

Forbes recently highlighted the 10 most sustainable companies in the world according to Toronto's Corporate Knights; Denmark's Novo Nordisk (NYSE: NVO  ) topped the list, which didn't include even one U.S.-based company.

Last fall, Newsweek and The Daily Beast highlighted the least green companies in America, calling out companies like KeyCorp (NYSE: KEY  ) and Monsanto.

We investors can also just pay attention to the companies that seem to be doing well by doing good, too.

Faith in the good
There are increasing signs that socially responsible investing is gaining influence and respect. For example, Reuters recently reported that socially responsible advising is gaining ground. Of 7,000 mutual funds Morningstar tracks, 197 are defined as socially responsible, up from just a few about 30 years ago.

Many investors may still be way behind this curve, though. Reuters also recently reported that investors may be the missing link when it comes to interest in doing good. At the recent Committee Encouraging Corporate Philanthropy meeting in New York, chief executives basically said that "consumers and employees [are] demanding companies do their bit for society, not investors."

They also suggested creating a "social responsibility index" to help show shareholders that philanthropic initiatives have real value. Western Union (NYSE: WU  ) CEO Hikmet Ersek blamed short-term traders for the lack of investor interest in social responsibility. Creating an index for tracking "will definitely force the short-term investors to think differently. You have to give back to make more money. ... That has to be in shareholders' understanding."

Short-term, trader-centric investing is faithless indeed. Hopefully more investors will see the moneymaking and world-changing potential in socially responsible investing, and recognize it requires faith (and time) to make good profits in good ways.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of KeyCorp and PepsiCo. Motley Fool newsletter services have recommended buying shares of PepsiCo and Western Union; creating a diagonal call position on PepsiCo and a synthetic long position in Monsanto; and writing a covered straddle position on Western Union. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (10)

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 March 07, 2012, at 5:08 PM, revealedin71 wrote:

    In other words, if you want to buy into the liberal agenda and let the Sierra Club run your investing life....then "socially responsible" investing is for you...

  • Report this Comment On March 07, 2012, at 5:42 PM, DJDynamicNC wrote:

    Since the liberal agenda is taking care of our living space, generating responsible profits and taking care of our fellow citizens, then yes. These are basic tenets and as American as apple pie.

    It boggles the mind that people are opposed to taking care of the environment. Believe me, I am a city boy - I haaaaate nature. But I think taking care of my dwelling and leaving it in good shape for my children is the most human of ideas.

    How is that even controversial?

  • Report this Comment On March 07, 2012, at 5:57 PM, wolfman225 wrote:

    Never mix money with faith or religion (yes, I include "man caused" global warming and eco-extremism in the definition of religion). "There lieth the way to hell".

    Seriously, there's nothing wrong with prefering that the businesses you choose to invest in share some of your social ideals, but to make it a primary component of your investment thesis......?

    Any decisions concerning money management and investing should be made primarily according to hard financial facts. Save the "social responsibility" litmus test for the determining factor when you have a choice of roughly equal investment options.

  • Report this Comment On March 08, 2012, at 11:04 AM, DJDynamicNC wrote:

    Given that sustainability is, by definition, doing more with less, it is a hard financial fact that sustainable organizations are going to be reaching for higher long-term efficiency. Given the consensus in the population regarding the important of taking care of the environment we live in, it is a hard economic fact that organizations which account for that demographic shift will have an advantage in making sales pitches.

    It is a hard economic fact that a polluted, toxic planet is a poor business environment.

    It is a hard economic fact that my children will benefit or be harmed by my own investment choices, both financially and environmentally.

    --> "yes, I include "man caused" global warming and eco-extremism in the definition of religion..." <--

    I won't take objection, but only because I include free-market extremism in the category of religion, so turnabout is fair play. ;)

  • Report this Comment On March 09, 2012, at 2:06 AM, Libertarian71 wrote:

    From the headline, I thought this article was going to be about buy-and-hold, which is the main form of faith-based investing.

    In any event, Lomax's shouldn't use the term "socially responsible investing" so loosely. "Socially responsible" by whose lights? The Green Party's? They likely have a different understanding of "socially responsible" than, say the Catholic Church.

    And is PepsiCo really "socially responsible," since they derive the bulk of their revenue from sugar water and high carb junk food snacks?

  • Report this Comment On March 09, 2012, at 8:44 AM, DJDynamicNC wrote:

    "From the headline, I thought this article was going to be about buy-and-hold, which is the main form of faith-based investing."

    Hmm. Can you explain that comment?

    Socially responsible appears to mean "responsible to society at large." It's pretty clear that taking care of your environment is socially responsible whereas dumping your trash in your neighbours yard would not be. I don't think that's particularly controversial, even to the Catholic Church (which has no problem with controversy).

  • Report this Comment On March 09, 2012, at 9:16 AM, TripleEFocus1 wrote:

    Great article Alyce. Thanks for referring us to the studies that take the subject of the importance of sustainability out of the realm of opinion into verifiable fact.

    The responses above illustrate just how much more work needs to be done to mainstream a simple understanding of sustainability. I do it this way in my investment choices....if a healthy (sustainable) world is build upon NATURAL CAPITAL, SOCIAL CAPITAL and ECONOMIC CAPITAL I will make no investment decision that doesn't strive to grow all three. Another way of saying this is that I seek to make a PROFIT while simultaneously caring for PEOPLE and PLANET ( the 3 P's). So far my portfolio is up 28%

    Thanks again for your writing.

  • Report this Comment On March 09, 2012, at 12:40 PM, cattywampus wrote:

    A social responsibilty index sounds interesting. I wonder how long it would be before the short ideas started coming out? As for me, I'm still shorting fire, it's got to pay off eventually. In the meantime, I'm inclined to agree with Alyce as long as she doesn't get dystracted by any white rabbits.

  • Report this Comment On March 09, 2012, at 2:59 PM, TripleEFocus1 wrote:

    a "fiery" return of 303% and 370% on two Whole Foods purchases makes a welcome gift from the white rabbit. I'll take that Profit any day - along with the bonus of growing Social Capital and Environmental Capital for cattywampus and all other Fools and non-Fools.

  • Report this Comment On March 14, 2012, at 3:33 PM, cattywampus wrote:

    Ditto, Trip, she is a credit and guiding light in the fool universe and sets a great example. I was just kidding about shorting fire, Prometheus was a Titan among men and Themis is not to be trifled with nor any of the Oracles of Delphi. As for the white rabbit, "don't let the men on the chessboard get up and tell you where to go" Slick is more along my line of thinking. She is a strong, intelligent and independent women of which the world could only better itself by having more of. I like her recent self-preserver article. fool on Trip

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