Cause investing: Do-it-yourself giving

updated 7:09 p.m. ET May 28, 2008

You won’t – by yourself – halt global warming if you buy stock in a company that sells solar-powered cars to drivers in Mexico City. And your dad probably won’t single-handedly end the genocide in Darfur if he sells his stock in that oil company that does business with the Sudanese government.

But don’t underestimate the power of cause investing. As it happens, putting your money into “socially responsible” stocks, mutual funds and community loans can put change in your pocket — and make change in your world.

How much change? So-called Socially Responsible Investment funds (SRIs) continue to match or outperform the S&P 500: They can make as much money for you as any other. The Domini 400 Social Index, the SRI world’s answer to the S&P 500, shows that since 1990, the S&P 500 racked up a total return of 10.57%, versus the 11.01% return of the Domini 400 — proof positive that armchair activists can profit just by weaving their values about society, the environment, animal rights, corporate America and religion into their long-term savings strategies.

And consider the choices. There’s an SRI for practically every religious belief, social cause or global viewpoint. There’s the Ave Maria Catholic Values Fund, which invests in companies that operate in keeping with Vatican teachings on abortion, marriage, and other issues. Then there’s the Domini Social Investments fund, which — among other things — advocates fair employment practices for gays and lesbians. For the environmentally minded, there’s the Winslow Green Growth Fund, which invests in companies that compete in green market sectors such as clean energy, natural products, and recycling.

And that’s just for starters. North Dakota-based Integrity Mutual Funds, Inc., for example, attracts investors who support animal rights. Chicago-based Ariel Mutual Funds, on the other hand, yanks investor money from companies that promote tobacco, handguns and nuclear energy. The Portsmouth, N.H.-based Women’s Equity Mutual Fund, meanwhile, screens companies according to how well they treat women.

SRI funds are hot
Regardless of what they push or punish, these funds are hot. And they’re getting hotter by the year. Between 1995 and 2007, total SRI dollars under professional management grew from $639 billion to $2.71 trillion — an increase of 324%.

Cause investing isn’t a new idea. In the 1920s, churches in the United States began divesting so-called “sin stocks” — shares in alcohol, gambling, and tobacco interests. In the 1940s, the Boston-based Pioneer Fund instituted a policy of investing in “businesses providing truly useful goods and services to people rather than businesses making money by exploiting people’s weaknesses,” says John Carey, the fund’s present-day manager. Cause investing gained steam in the 1960s amid the grassroots social movements protesting the Vietnam War and advocating for civil rights, product safety and environmental protection.

The watershed in the evolution of SRIs came in the 1970s with the founding of the Interfaith Center on Corporate Responsibility (ICCR), a New York–based international coalition of nearly 300 Protestant, Catholic and Jewish institutional investors who advocated diversity, tolerance, and global peace. With a combined portfolio estimated to be worth more than $100 billion today, the ICCR is credited with creating the movement to divest from South Africa during Apartheid. Today, environmental and governance issues are the primary focus of most SRI investors, fund managers say.

To be sure, SRIs aren’t without some downside. Since the start of the Iraq war, some SRI funds haven’t fared as well because they tend to divest in defense contractors. But an even greater negative impact may be felt in the high-performing commodities sector. “If you look at commodities — energy, mining, coal, oil — they’ve been performing extremely well recently,” says David Kathman, an analyst with Morningstar, which tracks mutual funds, “and many SRIs avoid them for environmental reasons.” Further, SRIs are so diverse, Kathman says, that not all of them make a wise choice, money-wise.

But given today’s mainstream mania for social change, there's never been as much variety from which to choose, nor as much public demand for ways to make a difference, analysts agree. Don’t believe it? Consider the public’s growing awareness of climate change, as well the escalating talent war among multinationals for the best and brightest recruits among today’s passionately cause-minded 20- and 30-somethings from Paris to Peoria.

MORE FROM GIVING

Giving Section Front

'Matchmaker' lends hand to cancer patients Arquette to live in box for 2 days Shriners may downsize some hospitals Latest Buffett lunch auctions for $1.7 million Newsweek: First lady reaches out to D.C.’s poor Willie Garson touts adoptions in U.S. Giving Section Front   Add Giving headlines to your news reader: