Tips on Making Socially Conscious Investments

In the past several years, Americans have become increasingly aware of the social and environmental activities of U.S. companies. And this awareness has helped fuel an investment movement that’s variously called “green,” “socially responsible” or simply “socially conscious.”

Socially conscious investing is by no means new--the authors of a recently published book maintain that it started in the early 1900s when religious investors refused to endow organizations that perpetuated “sins” such as gambling, drinking, smoking and pornography. But in the past few years, it has come of age.

This investment category now accounts for roughly $625 billion in assets, compared to $50 billion in 1984, according to the Social Investment Forum in Minneapolis, Minn.

While returns vary from year to year, over the long haul socially conscious investing can produce competitive investment returns. Indeed, a handful of mutual funds that screen their investments through social criteria have outperformed market averages by wide margins, said Robert D. Shepard, president of the Minnesota forum chapter.

What is socially conscious investing? To some extent, the answer varies with the person you ask. Some “social” investors are primarily concerned with ecology, others with programs that promote peace. And other investors support a range of activities, including community investment, human rights, animal rights, equal opportunity and alternative energy.

But this type of investment is not for everyone. Typically, those who adhere to social investing standards avoid investments in popular vehicles such as Treasury bills and common stock in such international firms as Northrop and Lockheed.

They often shun traditional banks on the theory that many are hesitant to lend to poor and minority groups. When it comes to buying insurance products, there are so few choices for those constrained by social criteria that this investment category is almost not worth mentioning as an option.

Those who should consider social investing are people whose convictions are strong enough that they are willing to investigate the companies they invest in. In some cases, social investors accept slightly higher risks or slightly lower returns in exchange for the knowledge that they are doing good with their money. In other cases, they contend with a touch of inconvenience.

For example, some might support community loan programs, where investors pool their funds to support revitalization of a particular neighborhood. Investment returns on these loan pools are small--roughly equivalent to rates paid on bank deposits--but the risks are far greater because there is no federal agency guaranteeing the return of investors’ principal.

Meanwhile, other social investors shun banks for credit unions, which, on the whole, have better community lending track records, said Jack A. Brill, co-author of Investing From the Heart, a book about the social investment movement.

While interest rates paid by credit unions are usually competitive with what’s paid at banks, credit unions rarely have the expansive branch networks and plethora of services that can make banking with a major financial institution convenient.

However, those who are willing to put up with these minor deterrents have a wide array of socially conscious investment choices, Brill added.

Some of his suggestions:

* Put savings deposits in credit unions rather than banks. Credit unions are similar to the thrift and loan featured in “It’s a Wonderful Life”--they usually help finance projects solely for their members.

Although there are requirements for credit union membership, most people can meet the requirements to join at least one. Those who need help finding a credit union can contact the Credit Union National Assn. in Washington.

* Shun Treasury bills, notes and bonds, which are used to finance any and all government operations. A more socially acceptable option, according to Brill, is government-backed mortgage securities, such as Ginnie Maes, and securities backed by student loans, or Sallie Maes. Ginnie Maes and Sallie Maes are slightly more risky than Treasuries, but they usually pay better rates of return.

* With corporate stocks and bonds, invest only in companies or mutual funds that conform to criteria established by the Social Investment Forum. Those who are uncertain about whether an investment qualifies can contact the organization by phone or mail. The address is 430 1st Ave. North, Suite 290, Minneapolis, Minn. 55401. Phone (612) 333-8338.