So you think you're an environmentally conscious hipster who carefully separates recyclables from his or her trash, hauling them proudly and painstakingly to the curb once a month. So you protest against sweat shops in Asia by stripping off your $25 college sweatshirt, never to wear it again until small children get paid more than 2 cents an hour. Maybe you even spit when tobacco-sponsored NASCAR racing comes on the tube, as a protest against having a cancer-causing product endorse athletes while inspiring impressionable 13-year-olds to light one up. Yeah, yeah, Gandhi, you're all of those great things. But when it comes down to your finances, are you as pure as you think? If you really want to make a difference, then prove it with your pocketbook, and become a socially responsible investor.


Socially responsible investing is when you take your beliefs and values and apply them to how you invest your money. This is also known as having a "double bottom line," because not only are you looking for a profitable investment, but also one that meets certain moral criteria and that lets you sleep well at night. Your second bottom line could be moral, religious, or based on whatever Chicken Soup for the Soul principles help guide you through life.

Given the wide range of attitudes out there, socially responsible investors screen companies and mutual funds for those that conflict with their beliefs. For instance, some will not invest in those profit mongers that damage the environment, use innocent monkeys for research, or rely on vices (like smoking and boozing) to make a dime. There are investors who screen according to their personal causes, and others who follow a set doctrine, such as Catholics or Muslims for whom there are specific mutual funds. But of course, not all socially responsible investors are in agreement. Take, for example, the "gay benefits" issue. Some investors exclude companies like Walt Disney Co. for having gay-friendly policies while others embrace them. In fact, there is an entire mutual fund, the Meyers Pride Value Fund, that only invests in companies with gay partner benefits and policies that prohibit discrimination against homosexuals. As Austin Powers would say, it's all about your second bottom line, baby.

You are not alone

As a newcomer to the world of socially responsible investing, you may be interested to know that there are lots of other people out there with you. In fact, in 1999, $1 out of every $8 invested in stocks was prompted by a socially conscious decision. That comes to $2.16 trillion of the $16.3 trillion professionally managed in the United States, or 13%. The $2.16 trillion figure is up 82% from 1997. Yet in 1984, there were only 40 billion dollars in socially responsible investing.

While precise demographics of other socially responsible investors are not available, certain segments of the population are more inclined to participate. They include, but are not limited to:

  • baby boomers who lived through love-ins and peace rallies and who have an affinity for social awareness
  • women, who tend to appreciate companies where a glass ceiling is not part of the décor
  • minorities, who tend to support businesses that encourage diversity

Socially responsible investing has been around, in some senses, ever since the first investor took a stand against profit at any cost. The Quakers, who preach non-violence, probably would not put money on the Patriot missile just as centuries earlier they did not invest in slavery. Toward the end of the '70s, an international outcry was raised for South Africa to end apartheid, and some investors put their money where their mouths were by divesting from multi-national companies that did business there. Although economic sanctions against South Africa ended in 1993, investors continued the practice by applying similar principles to every company. Socially responsible investing got a serious foothold in the financial industry in the '80s with the establishment of screened mutual funds like Domini Social Investing and Citizens Mutual Funds.


Before investing, it might be a good idea to learn the basics of investing (SYW coming soon!) in the first place. You'll learn about the stock market, bonds, mutual funds, and garden gnomes. Once you've jumped that hurdle, the rest gets much easier.

Investing according to socially responsible guidelines is no different from any other stock investment - it just means a little more research. There are two things you must consider -- your financial objectives and your social objectives -- and then find a way to marry them.

Figure out your priorities

First, decide what your socially-oriented priorities are. This is the fun part and it's completely your decision.

Some issues are more popular than others. The table below beautifully displays how "screened portfolios" (money rejected under socially responsible guidelines) dealt with some popular issues. The higher the percent, the more socially responsible portfolios would accept or reject an investment purely because of that issue.

The percent of screened portfolios that look out for the following issues:

Issue Percent Reject companies that support the TOBACCO industry
97% Reject companies that support the GAMBLING industry
86% Reject companies that support the ALCOHOL industry
83% Reject companies that support the DEFENSE industry
81% Support companies that have a good ENVIRONMENTAL record
79% Support companies that demand HUMAN RIGHTS practices
43% Support companies that support LABOR issues
38% Support companies with a stance on ABORTION or birth control
23% Support companies with a stance on ANIMAL RIGHTS

Now we can't tell you what you should and shouldn't do. Just listen to your own personal Jiminy Cricket, and figure out what's most important to you.

Figure out your strategy

There are several approaches you can take about how to apply your second bottom line, most of which relate to how strict you are about a company's purity. For example, there is the take-no-prisoners attitude, where you screen with zeal for all offenders, no matter how minor the transgression. Another consideration is how far along the supply chain you hold companies accountable. If the company you invest in buys supplies from an offending company, would you still invest in it, or does the company have to be actively participating in the offense? Or you can take another more tempered approach and include companies under certain conditions. One condition could be that the company is the best in its industry for taking the most steps to cut down on pollution, even though it still pollutes. Like establishing your social issues, the standards to which you hold companies are also completely up to you.

Then come the financial considerations. As with any investment, you need to know your financial goals and have a level of risk you are comfortable with. For more specifics about general investment goals and risks, read our laugh-a-minute SoYouWanna learn the basics of investing? (coming soon!). Figure out if you have a high or low tolerance for risk, whether you are investing only in the short term or for 30 years down the road, and whether you want to actively manage your investment or let others do it for you (such as a financial advisor or a mutual fund manager).

A mutual fund manager picks a collection of companies to invest in which comprises a mutual fund. The most common route is to use a socially responsible mutual fund that, like any other mutual fund, bears a variety of risks. Some funds are high-growth and invest in companies that are less established or in emerging fields with the most potential to skyrocket. Other funds are more conservative and look for companies that have steady growth and continually meet their earnings estimates. And there are some funds that are not into stocks at all but prefer bonds, where interest rates tend to be lower but risk is also typically reduced. Still others are balanced, including stocks and bonds. There are mutual funds that only invest in domestic companies and others that are international, such as Calvert New Africa.

There are mutual funds that meet almost every investment strategy under the sun, and if you don't find one you like, there are ways to invest directly. But before you take the plunge, you may be wondering whether this is just a ploy to drain your savings or a genuine moneymaker. Read on.


How do you know if trusting your hard-earned shekels to a tree-hugger, no matter how earnest and well intentioned, will actually do something for your net worth? Like any investment in the stock market, it's a gamble. (Anyone avoiding gambling-related companies should leave the room right now!) There are no guarantees that your money will even come back to you, let alone gain 20 percent a year. But there are some statistics that might make you feel more at ease. In the past, one of the major arguments against socially responsible investing was that it would not be profitable. As it turns out, several socially-conscious mutual funds beat the S&P 500, a broad stock market index of 500 companies and a common indicator of the market's overall performance. Case in point - In 1999:

  • Citizens Index Fund, a mutual fund of 300 companies, increased 27.49%
  • Domini Social Equity Fund, an index of 400 companies, increased 22.63%
  • By comparison: S&P 500 increased 19.5%

Both funds have outperformed the S&P 500 since they started.

Here are some statistics on top-performing mutual funds in 1999:

IPS New Frontier Fund

IPS Millennium

Citizens Emerging Growth

Bridgeway Social Responsibility

Parnassus Fund

American Trust Allegiance

Dreyfus Third Century

Aquinas Equity Growth

Meyers Pride Value

Citizens Index Fund 187.50% increase










Detractors claim that socially responsible companies have higher costs of doing business. Proponents counter that companies with bad labor relations, worse environmental records and ugly lawsuits are the ones to avoid because ultimately they incur higher costs of doing business. (The tobacco industry, take note.) Companies that treat not just their stockholders but also their employees, the environment and their community well will probably have similarly good business practices in other areas. Still others say that socially responsible mutual funds have higher expenses because of the research required to screen companies. While in some cases, especially with smaller mutual funds, expense ratios can be higher, supporters say that as the fund grows, it will reach economies of scale and the expense ratio will decline.

Another concern about socially responsible investing is that you are limited in your choice of companies. But screened mutual funds exist with several hundred companies in them, and supporters say there are plenty of companies out there, it's just a matter of doing more research. Critics also maintain it is impossible to have a completely "clean" company. Although guaranteeing that a company of any size is 100% in compliance with every moral guideline is unrealistic, the screening process is an honest attempt to find the truth and pick the best of the lot.

Finally, you may be worried about whether you are investing on the fringe (that would be, investing with extremist weirdo groups that no sane person would ever endorse). Socially responsible investing is gaining broader acceptance with the increasing number of mainstream mutual fund companies hopping on the bandwagon. In December 1999, Vanguard, the nation's second largest mutual fund company, broke onto the scene to partner with Calvert Group, a longtime pusher of socially responsible investing. Now there are almost 200 socially responsible funds to choose from. At the end of this article are some other sites to help you find your way to true enlightenment, or at least a guilt-free investment.


Once you have established your second bottom line, researched your investments and put your concerns to rest, you now have a choice to make. Basically you have two options: 1) invest in mutual funds or 2) pick individual companies yourself.

Investing in a mutual fund

The main benefit of mutual fund investing is that the fund manager does all the research for you on the financial and the social side. The drawback is that you might not agree with every company chosen. Minimum investments typically are $1,000 but may be as low as $250 for an Individual Retirement Account, where your money is not withdrawn and not taxed until retirement age. So you must first contact the mutual funds that are compatible with your profile and scrutinize the ones that meet both your social and financial criteria until you find what you like.

With dozens of socially responsible mutual funds available, you may get overwhelmed with which direction to take. Don't worry, it's not so painful. Just follow these three steps:

  1. You can easily get a list of them by doing an Internet search for "socially responsible investing" or "socially responsible mutual funds." Or you can check out the web sites listed at the end of this article, some of which have complete listings of socially responsible mutual funds.

  2. Check out each fund's web site before requesting a "prospectus" from them. A prospectus is basically a booklet with the fund manager's philosophy on screening and investing, the fund's financial performance, and an application form. This way you can quickly determine if the fund's social priorities are compatible with yours. Typically, each web site will also have financial information about the fund, so you can figure out if it is profitable enough to help you retire to the Bahamas immediately or not.

  3. After you have found a mutual fund you like, you can order a prospectus online or by calling the mutual fund's 1-800 number. It should be on the doorstep for your reading pleasure as soon as the ever-speedy U.S. Postal Service allows.

Remember, only you know how much money you have to invest and what your tolerance for risk is. This will determine whether you choose one mutual fund or two or ten. Go with whatever seems both socially justified and financially promising.

To get you started, here are some of the players in the business (WARNING: This is merely a list of players, NOT an endorsement by

401 (K) it

Wait, wait! Before you write out that check and give up luxuries like food and toothpaste, you should know that you may be able to become a socially responsible investor immediately through your employer's 401 (K) plan, which lets you invest for retirement in the stock market through mutual funds. A 401 (K) plan automatically invests a portion of each paycheck without being taxed on your investment. More and more employers include such mutual funds as an option, including Ford Motor Co. and Oracle. So find out ASAP if your employer has such an option.

Do it yourself

Instead of letting a mutual fund manager be your guide, do your own damn picking to invest in a group of companies completely suited to your tastes. We're not gonna spend much time talking about self-investment, because it's really difficult. If you're reading this article, then you're probably a newbie to investing your cash. We therefore strongly recommend that you start out with mutual funds, and worry about investing on your own once you've made a couple million bucks.

But just because we're that nice, we'll provide you with a couple of suggestions about how you can invest on your own. One way to start is by looking at companies that are included in some socially responsible mutual funds. Another way to find companies that care, although this is not necessarily a reflection of their personal habits, is to look at a charity or cause you support, like breast cancer research, and see who the big donors are. But just remember, do some due diligence with their records because they may be forking over the big bucks just to look good. You can now inform your personal financial advisor of your choices, or you can buy stock directly through online trading companies or a stockbroker.

Get your financial groove on

Congratulations, Stella, you've got your groove back! You have started down the path of compounding karma. Just don't stop that diligent recycling effort. . .

Additional resources on the web: