Doing the right thing can sometimes be discouraging. I look at some big-name socially responsible mutual funds, for example, and I shake my head. The Domini Social Equity (DSEFX) fund, for example, despite sticking to ideals I respect, has underperformed the market for most of the past decade. [Its top holdings recently included Johnson & Johnson (NYSE:JNJ), Verizon (NYSE:VZ), and IBM (NYSE:IBM).]
But there's another way you can approach investing responsibly -- by focusing on individual companies. And one thing to look for in them is a commitment to sustainability. Not convinced? Well, a recent study by the folks at A.T. Kearney showed that companies that focused on sustainability outperformed their industry's mean stock performance by an average of 15 percentage points. 16 out of 18 categories saw sustainable companies beat their industry averages -- with sustainability defined as "protecting the environment and promoting social well-being while achieving shareholder value."
Let me be the first to jump in here and point out a few caveats about the study. For one thing, the study covered just a six-month period, between May and November 2008. It's dangerous to draw any conclusions from such a short period. And in addition, 2008 was far from an ordinary year. Also, note that the findings weren't universally true -- when investing in construction or household goods, for instance, sustainability didn't pay.
But still ...
I can't quibble much more, though, because it all makes sense. Sustainability practices involve long-term planning, and focusing on the long run is what companies need to do if they want to be around for a long time. Many sustainability initiatives deliver win-win solutions for the company and shareholders alike. The report notes that one company saved hundreds of millions of dollars by "reduc[ing] its greenhouse gas emissions by 16%, its energy use by 3%, and water use by 28%" since 1998. Nevertheless, it has also upped its production volume by 76% since then.
What to do
One thing we can do is keep an eye out for further studies and results, as the effects of going green will surely be studied going forward. We can also assess the responsibility of companies we invest in. Here are some of the top 10 holdings of the Dow Jones Sustainability United States Index:
- Chevron (NYSE:CVX)
- Cisco Systems (NASDAQ:CSCO)
- General Electric (NYSE:GE)
- Pfizer (NYSE:PFE)
Meanwhile, do consider socially responsible mutual funds, because some perform well. You'll find at least one such fund recommended in our market-beating Motley Fool Champion Funds newsletter. Try it for free and see all its picks.
