Matching your money with your values

Robert Topham, MD, does what he can to help the environment. He's been a member of the Sierra Club, he recycles, and he drives a car that gets good gas mileage.

So when the Salt Lake City dermatologist heard about a way to make his investments "green," it seemed like the perfect hue for his money.

He bought shares in a socially responsible investment (SRI) fund run by the Sierra Club. The companies in the fund are screened to ensure that they are environmentally friendly. And that makes Dr. Topham feel good.

"I do whatever I can on a daily basis for environment. So I figured I should put an investment toward it."

More investors like Dr. Topham are turning to SRIs to put their money where their values are. According to the Social Investment Forum, a trade association, socially responsible investing in the United States has remained robust in the last three years even as the rest of the investment world stagnated.

Assets in socially screened portfolios climbed to $2.15 trillion in 2003, up from $2.01 trillion in 2001, according to the forum's annual trend report.

The 2003 study also found that screened portfolios grew 7% from 2001, while the broader universe of all professionally managed portfolios fell 4% during the same period.

The investments are screened to meet a variety of criteria. Some exclude investment in tobacco companies or weapons makers, while others put money into companies that have a good environmental track record, or treat their employees well. Some are designed to meet religious values, and others are secular. And some are even tailored to meet an individual's preferences.

One of the most popular ways to engage in socially responsible investing is through an SRI mutual fund.

The forum said there were 200 such funds in 2003, up from 168 in 1999 and 55 in 1995.

The Sierra Club rolled out three SRI funds in 2003, screening primarily for environmental factors and some social criteria. Garvin Jabusch, vice president for Sierra Club Funds, said the first year was a success, with the funds consistently outperforming the S&P 500 index.

Jabusch said socially responsible investing is just starting to catch on in the United States and could figure more prominently in years to come.

"It seems that as there is more malfeasance in the world, people are more concerned about where they are investing," he said.

But some critics believe the funds have drawbacks or little advantage over traditional investments.

"We have found the social screens in and of themselves don't make a big impact one way or another," said Shannon Zimmerman, a mutual fund analyst for Chicago-based Morningstar Inc. "They do as a group tend to slightly, on average, underperform and I think that has something to do with [the fact] that the funds are slightly more expensive."

Some say the extra expense comes from the added research that is put into SRIs. But Zimmerman believes it is more likely due to SRI funds having smaller asset bases, which tend to charge a little more. Still, he said it is possible for people who are willing to do some research to find SRI funds that outperform their non-screened counterparts and cost less.

He said investors who are considering putting money into an SRI fund should look at the fund manager's track record; they should weigh how much the fund costs; and they should think about whether the social screens really reflect their values.

Some people may prefer community investing. This strategy allows investors to open bank accounts, CDs and money markets at community banks or credit unions that lend into low-income communities.

"The whole idea is that you're putting your money into a financial institution that is helping to build low-income communities," said Todd Larsen, media director for the Social Investment Forum.

Heartland Financial USA Inc., a multibank holding company that specializes in community banking, began providing socially responsible services for investors in 1985.

"When we first started back in the '80s, it was definitely on the fringe. We were viewed as kooks on the left wing. But it has definitely become more mainstream over the last several years," said Melvin Miller, senior vice president and chief investment officer for Heartland.

Miller said he has noticed a shift in the last several years in what screens investors are seeking. He said previously, SRI investors were primarily trying to exclude bad companies from their portfolios. Nowadays, he said investors are looking to reward companies that have good track records, whether that is with labor relations or the environment or whatever.

Larsen said SRI funds can steer companies into improving. Shareholders can urge the corporation to do something better, so the funds have some sway over the companies they hold. "People have told us they can sleep better knowing their investments are being used in a socially responsible manner," he said.

Increasingly, Larsen said, pension funds are screening their investments. In fact, he said the fastest growing SRI segment is separate accounts, which includes pension funds and foundations.

For those who want to take a more personal approach, there are financial planners who specialize in socially responsible investing. They can put together a custom portfolio to meet an individual's goals.

Still, socially responsible investing is not for everyone.

F. Tempel Riekhof, MD, a retired Salt Lake City ophthalmologist, said that several years ago his church considered socially responsible investing and ultimately decided against it.

"There really isn't enough of a benefit or enough a statement to really worry about it," said Dr. Riekhof. "Also, if you're investing to make as much out of it as you can based on your risk tolerance, if you're eliminating a company that has done really well you may not be doing yourself a favor either."