Socially responsible investing (SRI) is one way to feel good while doing good, for the world as well as your pocketbook. But trying to define SRI companies isn’t black-and-white. Some investors value how “green” the company is more than diversity in management. For others, good corporate governance trumps environmental impact, explains Alyce Lomax, who happens to run one of the only real-money, real-time SRI portfolios (which you can follow online, free).
One way to think about socially responsible investing is to consider how well a company balances the interests of all its stakeholders, including the community it operates in, its employees, customers, and the shareholders of the business itself.
Three surprising SRI companies that fit this description:
- Costco [COST] At first glance, this big box behemoth might seem to be the opposite of SRI. But Costco treats its employees exceedingly well, providing them with health insurance (unusual in retail) and above-average wages. And it treats its customers as near-family.
- Amazon. (AMZN) With its environmentally friendly packaging and paper-free Kindle e-readers, it could also be considered an SRI.
- Starbucks. (SBUX) It treats both its coffee suppliers and its employees generously and fairly.
Just as important: if you’d owned these three stocks over the last 10 years, you’d have handily beaten the S&P 500. Nice. Like a growing cadre of investors, Lomax connects with the philosophical underpinnings of SRI, but she also seeks to balance that with standard investing metrics. In nearly two years, her portfolio is up 19%. In picking the 19 stocks for her portfolio, Lomax says she evaluates how expensive a company’s stock is by assessing both its price-to-earnings (P/E) multiple and its “PEG” ratio, which takes into account the company’s expected growth rate. She’s also looking for companies with rock-solid balance sheets, typically leaving those with big debt loads alone. You can find these factors yourself by checking Yahoo! Finance.
In terms of social values, she says, a company’s annual report can give you a sense of their focus, as can research on websites like The Forum for Sustainable and Responsible Investment.
If you’re leery about picking companies yourself, there’s another way to do it, Lomax says. You can invest in SRI mutual funds, the number of which has grown exponentially in recent years. In 1995, there were only 55 socially responsible mutual funds in the U.S., with assets of $12 billion. By 2010, that jumped to 250 SRI-focused funds managing assets of $316.1 billion.
Using your money in a way that matches your values ups the feel-good factor—and now you don’t have to sacrifice profit to get that warm, fuzzy feeling.
LouAnn Lofton is the author of Warren Buffett Invests Like a Girl, and a contributor to the Motley Fool.
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