YOUR MONEY: 'Socially responsible' investing is growth industryIn this dreary stock market, it's not a happy time to be an investor. But there still are ways to feel good about investing. Think "socially responsible investing," or SRI for short. In simple terms, it means investing in companies and products that do good, environmentally and socially.
By: Claudia Buck, McClatchy Newspapers
In this dreary stock market, it's not a happy time to be an investor. But there still are ways to feel good about investing.
Think "socially responsible investing," or SRI for short. In simple terms, it means investing in companies and products that do good, environmentally and socially.
And it's exploded in the last few decades. Embraced by everyone from small investors to big-time pension funds like the California Public Employees' Retirement System, "socially responsible" has become part of the investing vocabulary.
Socially responsible investing ranges from U.S. mutual funds to third world microloans. It made up $2.7 trillion of the $25 trillion in assets under professional management in 2007, according to the Social Investment Forum. That's $1 out of every $9.
The number of SRI mutual funds, along with assets, has also jumped in recent years.
Socially responsible funds typically avoid companies that involve tobacco, weapons, pollutants or other environmental no-nos. Some funds also screen for companies with good human rights and corporate governance policies.
And their rate of return isn't too shabby either, roughly equal to the S&P 500 in the last 20 years, according to several studies.
Matt Kuzins, a Sacramento, Calif., fundraising consultant for nonprofits, started in SRI more than 25 years ago. "I didn't want to put my hard-earned savings into companies and industries that I didn't agree with," he said, such as military weapons makers or nuclear power builders. "In dollars and cents, we've done comparable" to traditional investments, Kuzins said.
Another longtime SRI adherent in Sacramento is chartered financial consultant Bob Dreizler, who remembers feeling "odd and out of place" at traditional investment conferences when he got started in the mid-1980s. Today, he has lots of company as a "socially responsible" investment adviser.
"There are so many more options for social investors - there are a lot more mutual funds, a lot more advisory firms managing social portfolios." And, he noted, the quality of money managers and the research has improved.
Dreizler said most of his SRI clients are in their 50s to mid-60s, but he's starting to see younger clients.
"SRI has become easier because people see the logic of investing in companies that do things like water purification, alternative energy, etc. - It's what the future holds."
But there's also a desire to do some good in the world.
Ashwini Narayanan, whose Bay Area company links small investors with microloan companies helping the working poor globally, says socially responsible investing goes beyond simply donating money to charitable causes.
"It's a recyclable pool of assets - you can earn something back and do some good in the world," says the general manager of MicroPlace. "It works for people who want to be philanthropic, even in the current economy."
There are many routes to socially responsible investing. Here are some ways:
Go green. The simplest is to buy from companies whose goods and business practices you support. Need inspiration? Try the National Green Pages, a directory of companies that make everything from organic mattresses to free-trade coffee.
Get local. Put your dollars into community investing through local banks and organizations that make loans for affordable housing, startup businesses and other community developments.
Microloan it. One of the newest entrants in microloan financing is MicroPlace, which touts itself as a way to help "the world and your wallet." It acts as a clearinghouse, linking everyday investors with dozens of lenders making small loans to entrepreneurs in 35 countries. Launched in mid-2007 as an eBay subsidiary, MicroPlace allows investors to put down as little as $20 and earn from 1 percent to 5 percent.
Think corporate: For bigger investments in stocks or mutual funds, there are rankings based on a company's environmental and social practices.
Last year, Fortune Magazine's list of its Top 10 socially responsible companies included McDonald's, Starbucks, Union Pacific, Walt Disney and Weyerhaeuser.
Calvert Group and Domini Social Investments are two established SRI mutual funds that look for companies with strong records on environmental, human rights, workplace and other social issues.
The Domini 400 Social Index, roughly comparable to the S&P 500, started tracking socially responsible funds in 1990. Since then, it reports the S&P's annualized return is 6.5 percent and the Domini index is 7.2 percent.
"Over the long term, SRI funds are not necessarily better or worse than those of the broader market, but different," said David Kathman, a Morningstar analyst who follows the SRI industry. They tend to be overweighted in tech, he noted, and underweighted in industrials.
Some advocates dislike the term "socially responsible." Dreizler favors ditching the name because it sounds presumptuous and alienates people. He would prefer to call it socially conscious investing. Or better yet, "green investing" because "people understand that."
By any definition, it's a way to start small and feel better for it.
(Buck is the assistant business editor of The Sacramento Bee. Personal Finance Notebook answers questions about money matters, tapping a roster of experts for advice on navigating the often-confusing world of personal finance. Submit questions to firstname.lastname@example.org or P.O. Box 15779 Sacramento, CA 95852.)