For a company to be "socially responsible," it generally must have guidelines for corporate social responsibility, or CSR, integrated into its overall business model and mission. Think Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) company motto of "don't be evil." but in a more actionable and monitored way. (Google consistently ranks as one of the most socially responsible companies in the world.)
CSR is much more than just compliance with standard laws and regulations. It incorporates more of a forward-looking and progressive attempt to come up with a business model that's good not only for the company's profit but also for all stakeholders -- the community, employees, and other people besides just executives and shareholders -- as well as the environment. This approach is commonly referred to as the "triple bottom line," taking into account people, planet, and profit.
It's not just companies' actions themselves, but investment actions as well, that can have a social impact. For example, many hedge funds and individual investors oppose investing in cigarette companies over health concerns, or in areas affected by human-rights issues.
Why CSR might be a good long-term investment strategy
Sure, these lofty CSR goals may make for great soundbites for mission statements and press events, but do they also contribute to a company worth investing in? It seems so, and not only in the name of advancing social quality but also in terms of return on investment.
Many funds with social goals have returns outperforming the market. One example is the Domini Social Index (MSCI KLD 400), a fund that tracks companies that meet its standards for social responsibility. According to the fund's data, since 1990 the index has outperformed the S&P 500 with a 10.46% total return, compared with 9.93% for the S&P 500.
It's not only a good way to filter through companies with thoughtful and long-term-focused management, but it could also be a good way to hedge against the risk of public backlash against companies in the media spotlight for unsavory operations.
Nike has learned this lesson well, after reports of its poor foreign factory working conditions made headlines and caused a PR nightmare in the 1990s. Now Nike puts out its own corporate responsibility report and is commonly mentioned in lists of the most socially responsible companies.
Who they are
Companies that make an effort to be socially responsible entities are getting noticed. The Reputation Institute, a research firm, put out its list of the world's most socially responsible companies for 2014, and the top 10 are:
3. Walt Disney
8 (tie). Intel
Looking for an easy way to get started investing in socially responsible companies?
If you want to invest in socially responsible companies, a socially-focused mutual fund might be a good way to start. U.S. News and World Report put out a report earlier this year about the most socially responsible ways to invest, including water conservation fund PowerShares Water Resources Portfolio (NASDAQ:PHO), faith-based mutual funds such as the New Covenant Growth Fund, and many more similar special-interest social funds.
Whether it's a niche focus such as these funds, a specific company such as those mentioned here, or a more general CSR tracking index such as the Domini Social Index, there are plenty of ways to get started with only a little research.
Bradley Seth McNew owns shares of Apple and Walt Disney. The Motley Fool recommends Apple, BMW, Google (A shares), Google (C shares), Intel, Nike, and Walt Disney. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), Nike, and Walt Disney. 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.