Socially Responsible Investing: Why DIY?

10/28/2013 10:55:00 AM

by Suzanne Lindgren

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SRI funds make feel-good investing sound easy, but for the most impact youll want to do it yourself.

Back in 1971, when Methodist do-gooders Luther Tyson and Jack Corbett set out to change the stakes of the investment game with $101,000 and a novel conceptinvesting with a consciencesocially responsible investment (SRI) funds probably sounded like a hippys peace-pipe dream. Decades later the company they started, Pax World Funds, has become the cornerstone of a booming sustainable investment industry. But more and more, its looking like the pipe-dream part was true.

Investing in ecologically-conscious, fair-minded companies turned out to be a popular ideaunfortunately, its easier said than done. Still, Tyson and Corbett tapped a previously-unseen market and when others saw the dollar signs, they wanted in. By 1995, the U.S. had 55 SRI funds with $12 billion in assets, says the Forum for Sustainable and Responsible Investment. and by 2012 those numbers had grown to 333 and $640.5 billion, respectively.

Much of this growth happened in spite of evidence that many funds arent living up to their claims of social responsibility. In 2003, 23 SRI funds had shares in Halliburton , wrote Terry Fiedler in a 2005 report for Utne. The fast-food juggernaut McDonald’s, which has been linked to America’s obesity epidemic, was included in 41 funds. And ExxonMobil, a perennial environmental threat, was represented in the portfolios of some 40 SRI funds. At the time, the vice president of social research for Pax World Funds, Anita Green, pointed out that SRI funds use shareholder power to advocate for positive change from within the company. While this does lessen the blow, Greens claim contained more than a little deceit.

In 2006, Pax World Funds stopped calling its investments socially responsiblesince SRIs have strict rules on what they wont invest in (weapons, petroleum)and changed its investment philosophy to sustainable investing. The new terminology allowed Pax to invest in companies regardless of how they make their money, as long as theyre sustainable or socially conscious relative to other businesses in their industry.

Given the hazy new definition, we probably shouldnt have been surprised when the company was caught investing in businesses that profited from Pentagon contracts and petroleum in 2008. Pax claimed the investments were an oversight (how could they have possibly known that Anadarko Petroleum wasnt eco-friendly?) and paid a $500,000 fine. But the SRI industrys reputation was tarnished. T he real problem, wrote Ron Lieber for the New York Times. is the sheer impossibility of finding any companies to invest in that are truly pristine.

Still, investing in entities less ghastly than Halliburton or Anadarko remains possible. It takes a little legwork, but here are some tips and resources:

Invest in municipal bonds

These bonds are issued by city, county, and state governments, as well as nonprofits like universities, hospitals, and energy firms. A team of authors at GreenMoney Journal writes, Municipal bonds are, by definition, investments in the public good and ideally achieve some measure of positive social outcome. While muni bonds arent completely immune to default, they are relatively low risk. And many states offer tax-free municipal bonds for in-state investors.

Invest in your community

Slow Money members who have created local investment clubs are seeing returns of roughly 3 percent, and the benefits to the communitystrong local relationships, a robust local economy, and healthy foodare invaluable.

Think local and cooperative

Keep investments in a member-owned or nonprofit brokerage firm. The Times Lieber suggests Vanguard, USAA, or TIAA-CREF. Bank and save through your local credit union.

Keep tabs on your SRI fund

In a 2004 report. entrepreneur-turned-author Paul Hawken and the Natural Capital Institute (now WiserEarth ) knocked SRIs for investing in many of the same organizations as conventional funds. But Hawken didnt intend to take the industry downhe wanted people to demand clearer criteria and more transparency. Still, trying to change the industry might be more work than investing outside of it.