Dueling Fools: Socially Responsible Investing Bull

As we celebrate Earth Day, we can reflect on knowing that more people are aware of important social issues than ever before. Climate change and global warming have refocused attention on environmental issues. Big price hikes in gasoline and heating fuel have spurred new interest in a number of alternative sources of energy. It's an exciting time for those seeking major change.

Meanwhile, many investors probably have mixed feelings about these changes. In the past, it has been difficult to reconcile one's concern for social and environmental issues with the desire for financial success. Many social activists paint their opponents as greedy capitalists with no concept of ethical behavior. It seemed impossible to own shares of any large corporation without being a traitor to the cause.

Investing for the common good
With socially responsible investing, however, you don't have to suffer that internal conflict between your wallet and your values. And it's important to remember that being socially responsible with your investments doesn't necessarily mean sacrificing great returns. As companies such as Whole Foods Market (Nasdaq: WFMI  ) have discovered, the demand for products that address social concerns can create profitable business opportunities. Capitalizing on those opportunities is exactly what successful investing is all about.

Furthermore, while large companies with existing infrastructures may correctly identify potential chances to earn profits through socially responsible practices, they won't be able to move as quickly as small, new companies without any history to overcome. This evens the playing field and creates the possibility of getting in on highly successful small companies on the ground floor.

Still, when it comes to finding those companies, you may not know where to begin looking. That's where finding a good money manager may be helpful. As the track records of several SRI options show, you can look to others to make your investing decisions without giving up any chance of earning good returns.

Funds that work
A number of actively managed mutual funds follow SRI guidelines. Many of them have gotten a bad rap for several valid reasons, including high expenses and poor performance. Yet one socially responsible fund that Shannon Zimmerman recommended more than two years ago in his Motley Fool Champion Funds newsletter has posted great returns -- it has outperformed the S&P 500 by more than 9%.

There are some good index funds out there, too. While you still have to be careful about fees, the TIAA-CREF Social Choice Fund does provide a low-cost choice, with expenses of just 0.28%. A quick look at the fund's holdings shows that it holds some well-known names, including Johnson & Johnson and Procter & Gamble. It has outperformed the S&P 500 over the past three and five years.

Focusing on industries
Of course, there are many ways to be socially aware with your investing. Instead of turning over your investment decisions to a fund manager, you can instead choose industries and companies on your own. Here, exchange-traded funds can be useful in giving you a diverse set of holdings concentrated in a particular sector.

For example, if you're interested in solar energy, wind power, fuel cells, and other alternative-energy suppliers, then the PowerShares WilderHill Clean Energy ETF (AMEX: PBW  ) may have just the companies you're looking for as investments. With companies such as carbon-fiber maker Zoltek (Nasdaq: ZOLT  ) , solar specialist SunPower (Nasdaq: SPWR  ) , and alternative-fuel supplier Fuel Systems (Nasdaq: FSYS  ) included, this ETF lets you cover several different bases in the search to reduce dependence on fossil fuels. Similarly, you can expect a fund soon that will focus on companies that are responding to global climate concerns, including responsible producers as well as energy consumers such as FedEx (NYSE: FDX  ) and UPS (NYSE: UPS  ) .

In general, socially responsible investing suffers from an image problem. It conjures up images of activists who believe that capitalism itself is responsible for most of the world's problems. Yet the environmental movement has made great strides toward recognizing the ability to achieve its goals in ways that are economically viable. In particular, it has successfully enlisted the aid of businesses to support its efforts. Investing in a manner that supports those efforts is good for your portfolio and for the good of all.

Whole Foods Market and FedEx areMotley Fool Stock Advisor recommendations. Johnson & Johnson and UPS are bothIncome Investor recommendations. PowerShares WilderHill Clean Energy ETF is a Motley Fool Rule Breakers recommendation. You can try any of our newsletter services free for 30 days.

Fool contributor Dan Caplinger has his own ideas of social responsibility. He doesn't own shares of the companies mentioned in this article. The Fool's disclosure policy is accountable to you.


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