Being socially responsible comes of age for investors

PERSONAL FINANCE

March 05, 2000|By EILEEN AMBROSE

IT'S NEVER been easier to be a socially responsible investor. There are more places these days to put your dollars, and perhaps better yet, the returns are competitive.

Social investing means using personal values besides financial criteria to select stocks. Social investors may avoid companies that pollute or have unfair labor practices. Instead, they invest in businesses with a clean environmental record or progressive workplace policies.

Today, 175 mutual funds screen for social criteria, up from 55 funds five years ago, according to the Social Investment Forum, a trade group. More are on the way.

TIAA-CREF, a provider of teacher pension plans and financial services, is launching a social equity fund next month. And the Vanguard Group plans to offer a fund tracking a social index being developed by the Calvert Group in Bethesda, which also provides socially responsible funds.

The entry of Vanguard, the nation's second-largest mutual fund firm, means social investing has "come of age," says Amy Domini, founder and president of Domini Social Equity Fund.

It's been a long time coming. Socially responsible investing has been practiced for hundreds of years by religious groups. It gained a greater following in the 1970s as investors protested apartheid in South Africa and avoided companies that did business in that country.

From there, investors began screening out companies involved in tobacco, gambling, nuclear power and weapons. And they began investing in companies with good labor, environmental and human rights records.

Last year, $2.16 trillion, or 13 percent of assets under management in the United States, was invested in socially responsible portfolios, the Social Investment Forum reported.

That's up from $1.185 trillion, or 9 percent of assets under management, in 1997.

Over the years, social investing has been viewed as something that was better for the conscience than a portfolio's return.

But a study last year by Morningstar, which rates mutual funds, found that socially conscious funds performed as well as those that didn't use any social screens. And 21 percent of social funds with a three-year track record received Morningstar's top five-star rating. Two years earlier, no social funds rated five stars.

"It shows that you aren't necessarily sacrificing your wallet to invest in accordance with your values," says Emily Hall, co-author of the study.

One reason for the good returns is that socially responsible funds lean toward growth stocks, which have been the high performers in recent years, Hall said. The funds' criteria tend to screen out chemical manufacturers, oil companies, utilities and other cyclical stocks that have been laggards, she said.

Instead, the funds' screens tend to favor technology stocks that have been driving the bull market.

Larry Bohlen of Adelphi says he's been pleased with his returns as a social investor. He became one in the early 1990s after seeing the influence investors had on dissuading companies from doing business in South Africa.

"That made it clear you can make choices," says Bohlen, director of health and environment programs for Friends of the Earth.

The 33-year-old started with the Parnassus Fund, which uses environmental and other social screens.

He invests in Ben & Jerry's, he says, because the ice cream company refuses to use genetically engineered milk and gives 7.5 percent of its pretax earnings to social causes. And he owns stock in Whole Foods Market, owner of natural food supermarkets; and Interface Inc., which makes recyclable carpet tiles.

Bohlen says his investment philosophy also caused him to dump his shares in Enron Corp. last year after the energy company sold its stake in a solar company and said it would build a pipeline through a Bolivian rain forest.

It's hard to be a purist and a social investor, though.

No company is perfect, says Domini, who invests in companies with the best track records on social issues. She says she uses shareholder activism to make those companies even better corporate citizens.

She says she is closely watching the antitrust trial of Microsoft, her fund's largest holding. "It will make it difficult to hold onto that [stock] if, in fact, the court finds Microsoft guilty," she says.

If you want to become a social investor, first consider what issues you care about, experts suggest. Do you want to avoid companies that make weapons and invest in those that support workplace diversity?

Next, find the fund or company that comes close to meeting your criteria. Some funds might avoid companies involved in, say, tobacco, while others might invest in companies with a minor interest in the product.

Contact funds directly to find out their screening process. The Social Investment Forum's Web site, www.socialinvest.org, has a list of funds and screens.

Check out a social fund as you would any other fund, Hall advises. Review its performance against its peers and benchmark, whether it matches your tolerance for risk and its fees, she says.

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