by Mary Ann Mcgivern

Created on: November 15, 2009

The easiest and simplest way to make socially responsible investments is to invest in a mutual fund that uses ethical criteria to select socially responsible corporations. Pax, Calvert and Domini are three of the oldest of these mutual funds. They look for companies that make quality products, treat their employees fairly and protect the environment. Then they scrutinize these firms' balance sheets to determine if they are making a profit.

Another strategy is to instruct one's broker to make socially responsible investments. But what criteria should the broker use? Many faith congregations instruct their brokers not to invest in companies that make weapons or alcohol and tobacco products. Union pension funds may refuse to invest in anti-union firms. These are all value choices. The individual may have strong value preferences for what not to invest in as well. But it is more difficult to choose companies that are doing good and doing well. Brokerage firms, like mutual funds, carve out specialty niches.

One working principle is to select the best in class. An investment portfolio should be diversified. It should have utilities, financial services, manufacturers, pharmaceuticals, etc. Consider utilities. And consider values. How does the investor feel about nuclear power plants? About the utility's role in promoting conservation? About the utility's environmental record? About whether the utility has a good relationship with its workforce? Among all the utilities, which ones have the best social responsibility records according to the investor's values, and among those, which ones have the best earnings potential?

Investing is a full-time and demanding job. This author does not recommend it to the casual investor.

But if an investor is determined to make investments, another principle that might be useful is to remember that Small Is Beautiful. E.F. Schumacher wrote the book in 1971 and it remains true. Small and medium-sized firms based in the local community that have a good local reputation have potential as socially responsible investments.

Another route is to invest in entrepreneurs and business start ups. This is the most risky of all investments. Ninety percent of business start ups fail. But sometimes one has the money and is willing to take the risk (perhaps because the entrepreneur is a member of the family). Here the best single measure of social responsibility is: is the business plan committed to sustainability? Is the company in it for the long haul? Do they see a future that will have benefited from their products and services? Do they expect the future to want them? If they have a sustainable business plan and a good product, they might be well worth the bet.

Finally, remember that working for a socially responsible company is making an investment too. That's a life well spent.

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