by Christina Pomoni

Created on: November 11, 2009   Last Updated: November 15, 2009

A common apprehension about socially responsible investing (SRI) is that there is a premium that organizations have to pay for being socially responsible that inevitably lowers investment returns. If indeed this is the case, then SRI is nothing more than a niche market that will only appeal to investors with positive perceptions about particular companies, who are ready to accept lower returns for satisfying their concerns. On the other hand, if SRI generates higher investment returns, then it will be increasingly integrated into the investment strategies of organizations in order to boost returns.

Today, over 200 mutual funds are available for socially responsible investing and investors can create competitive portfolios that really reflect their social concerns. Organizations continue to attract responsible investors, who demonstrate zero tolerance for companies that are not socially responsible and screen them out of their portfolios. In doing so, they actually give a motive to organizations to become socially responsible in order to get a higher SRI ranking and be more competitive among companies in the same industry. Eventually, this enhances their profitability, while responsible investors average out risk by focusing on company screening.

One of the most widely used SRI benchmarks is the Domini 400 Social Index that tracks the performance of 400 public organizations that meet several social and environmental criteria. Also known as DS400, the Domini 400 Social Index is a market cap weighted stock consisting of 250 organizations belonging to S&P 500, 100 non S&P organizations that are included based on their market cap and 50 organizations that demonstrate 'exemplary' social and environmental records, according to the managing company, KLD Research and Analytics. Since 1990 that DS400 has been created, it has an annual average return of 11.01 percent which is higher than the average return of 10.57 percent of S&P 500.

Besides DS400, other SRI benchmarks are available to investors to enable them to compare SRI to broader based investing such as The Dow Jones Sustainability Indexes that include global, European, Euro zone, US and North American benchmarks, and track the financial performance of the leading sustainability driven organizations since 1999.

The Cleantech Index tracks the performance of 46 leading publicly traded companies in sectors such as transportation, alternative energy, energy efficiency, and environmental quality. In 2007,

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