Can You Afford to Be Socially Responsible?

I left a comment on this article by Dan Caplinger over at the Motley Fool site. The headline of the article asks "Can You Afford to Be Socially Responsible?" Of course, if you're someone who believes in social investing you've heard this question before. The big knock against SRI has been that investors who apply social or ethical screens to their investments settle for humdrum returns on their money because they avoid high performers that happen to conflict with one of their beliefs.

These days, that's wrong of course. The universe of SRI mutual funds is large enough that investors have plenty to choose from when building a portfolio. According to Morningstar, SRI mutual funds are in 26 different fund categories, including small, mid and large cap; growth, blend and value; specialty and bond; international and target date. It's not like the "old days" when there were just a few fund families around.

Additionally, more and more companies are waking up to the benefits of good governance, respect for the environment, ensuring fair labor practices all the way down their supply lines and other issues that have been of concern to social investors. Look at Nike, for example. The athletic shoe giant was bounced off the KLD Domini 400 Social Index at one time because of the mistreatment of workers in the third-world factories where the company has its shoes assembled. But Nike has addressed those concerns and is back on the KLD Domini 400 and in the portfolios of many SRI money managers. Wal-Mart is another one-time offender that many social investors no longer avoid. In other words, the field of stocks available to social investors is expanding as companies improve their policies.

If you've "diversified your mattresses," to quote the caption in a recent New Yorker cartoon, perhaps you've protected your investments this year. Otherwise your portfolio is probably down sharply whether you're a socially responsible investor or not.