by Mary P Ivy

Created on: November 11, 2009

Can Socially Responsible Investments Make Good Returns?

Investors want and need to make decent returns on their money, but many do not feel comfortable profiting from businesses whose products or practices they do not condone. These investors do not want to support companies that exploit employees, disregard the environment, treat animals in an unethical manner or that contradict the investor's moral or religious beliefs. They may not want to support those companies that maximize short-term profits by engaging in overall poor corporate practices.

But, these investors may wonder if choosing a Socially Responsible Investment will offer respectable returns. Apparently by selecting carefully, it is entirely possible to get decent returns while supporting only businesses the investor admires.

With the recent exposure of the ugly underside of some companies, many investors may see similarities to the early part of the decade and shameful players like Enron and Worldcom. If that time looks similar to present conditions, it may be worth noting that after that debacle, Socially Responsible firms did rather well.

Shaheen Pasha for CNNMoney reports that after the Enron and WorldCom scandals there was a rush to Socially Responsible firms and funds. These funds have seen tremendous growth since the mid 90s and provide investors with "returns that are comparable to, if not better, than traditional funds." The site lists 221 firms and highlights top performers (2006).

The Domini Social Equity Fund Investor Shares (DSEFX) is a fund that compares well when judged alongside the S&P. From its inception in 1991, it has returned an average of 7.14% while the S&P 500 returned 7.75% in the same time period (Domini.com).

Another Domini fund, the Domini 400, rates favorably, according to William Donovan in an article titled "Socially Responsible Investing: High Morals But Low Returns?" He explains that the "DS400 shows that as a broad concept, socially responsible investing has the potential to provide good returns." He also finds that Socially Responsible Strategies have "performed spectacularly over periods of time" (About.com).

Karen Gibbs writes in "Investing for Your Belief" that "Over the past 10 years, returns for socially-responsible funds have averaged annual returns of 6.7 percent, while diversified U.S. equity funds on average returned 6.93 percent a year. The typical socially-conscious diversified stock fund fell 25.75 percent last year, compared to a 25 percent decline for diversified stock funds, according to Morningstar figures" (Wall Street Week with Fortune).

As with any investments, careful research is necessary, but it appears that solid returns are possible either through Socially Responsible mutual funds or individual stock purchases of SR identified companies.

Sources:

CNNMoney, 2006.

Domini.com

About.com

Wall Street Week with Fortune, April 16, 2003.

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