Socially responsible investing (SRI) is an investment plan that tries to balance financial returns with social benefits. Some have also labeled this as sustainable, socially conscious, or ethical investing.
This investment strategy focuses on issues like corporate governance, consumer protection, employee treatment, and broader matters like social justice, environmental stewardship and human rights. Moreover, SRI also considers shareholder advocacy and community investing.
These ideals may seem lofty, but the collapse of the financial system in 2008 and the wave of legal and ethical transgressions that have surfaced since then have caused some investors to reconsider how to invest.
Essentially, the goal of SRI is to invest in companies or mutual funds that treat people with respect. In particular investors concerned with ethics hope to avoid investments that might cause suffering, damage the planet, mistreat workers and customers, and violate the law.
So people must take responsibility for their investments, hold onto their values and aim to make money. In particular mutual funds referred to as “socially screened funds” consider these values in their asset allocations. But the options are somewhat limited as the number of socially screened funds is small compared to the broader fund sector.
In fact, such funds account for less than 1% of the fund industry according to the Social Investment Forum. However, the total assets of these funds continue to grow. In 1995, there were only 55 mutual funds dedicated to SRI, with $12 billion in assets. Now there are more than 490 with assets close to $570 billion.
Let’s take a look at some companies and socially screened funds that have a good track record of balancing ethics with being profitable.
Socially Responsible Companies
Starbucks Corporation (NASDAQ:SBUX) has long made a connection between profits and its societal role across the globe. The coffee retailer does business in 60 countries. It has gained market share because of quality coffee products (depending on one’s taste) and its work culture – all employees are offered health insurance. But it did take prodding from environmental groups to push Starbucks Corporation (NASDAQ:SBUX) to buy coffee beans from small farmers above market rates.
On the profit side, the coffee chain recently reported profits of $390.4 million, or 51 cents a share, up from $309.9 million, or 40 cents share, a year earlier. Adjusted earnings were 48 cents a share, revenue in the quarter rose 11% to $3.56 billion. Starbucks Corporation (NASDAQ:SBUX) expects full-year earnings of $2.12 to $2.18 a share – higher than its earlier forecast of $2.06 to $2.15 a share. At the current share price hovering at $60.50, which is an all time, this might be a plateau.
So investors should be thinking long term. Future growth depends on three factors – expansion of its “ready to drink” brew into the retail sector, expanding Starbucks Corporation (NASDAQ:SBUX)’ brand into China via the ready to drink line, and the company’s acquisition in January of San-Francisco based La Boulange that serves baked goods and sandwiches. Executives intend to replace Starbucks Corporation (NASDAQ:SBUX)’ munchies with this line store by store, and many analysts are positive about future growth.
Whole Foods Market, Inc. (NASDAQ:WFM) owns and operates a chain of natural and organic foods supermarkets. WFM supports sustainable agriculture and reducing waste and consumption of nonrenewable resources. The food chain encourages environmentally sound programs and also created Whole Planet Foundation to alleviate poverty in rural communities worldwide.
Whole Foods Market, Inc. (NASDAQ:WFM) has a market cap of $16.0 billion, and a P/E ratio of 32.5, above the S&P 500 P/E ratio of 17.7. However, shares are down about 5.5% so far in 2013. But the company has a history of solid revenue and net income growth, and good cash flow from operations.
The outfit has boosted earnings per share by 20.0% in the most recent quarter compared to the same quarter a year ago. This follows WFM’s history of positive earnings per share growth over the past two years. The company continues to outperform the S&P 500, a trend that should continue making Whole Foods Market, Inc. (NASDAQ:WFM) a good buy.
NextEra Energy, Inc. (NYSE:NEE) is part of the utilities sector and utilities industry. It is included here because it has been previously rated as one of the best socially responsible energy companies by Forbes Magazine (2011). This is primarily due to the fact that NextEra Energy, Inc. (NYSE:NEE) is the largest generator of renewable energy from wind and solar polar in North America.
The firm announced decreased on profits on April 30, 2013, but most analysts remain optimistic about the stock. In fact, shares hits a new 52-week high – currently around $82+ above its previous 52-week high of $81.35. The energy company has a market cap of $34.01 billion and shares are up more than 16% in 2013.
While revenue decreased from the same period last year this is a reflection of the energy outfit’s continued investments in renewable energy from the wind and sun. Despite falling revenues most analysts remain optimistic about the stock and rate the company as a buy. The bottom line: NextEra Energy, Inc. (NYSE:NEE) has a history of strong stock performance – a trend that should continue as the company increases its market share in renewable energy.
Socially Responsible Mutual Funds
Calvert Equity Fund (CSIX) is one of the oldest funds dedicated to SRI and capital appreciation. Calvert is a large cap fund that invests primarily in large US outfits like Google, Apple and CVS/Caremark. Over the past 15 years, the fund’s annual returns have been 6.9% – compared to 5.5% for the S&P. So far in 2013, the rate of return has been 5.25%.
TIAA-CREF Social Choice Equity Fund Retail Class (MUTF:TICRX) seeks a long-term total return that reflects performance of the broader US stock market while considering certain social criteria. TIAA-CREF selects roughly 1,000 stocks from the Russell 3000 based on 5 standards like the use of natural resources, labor relations and corporate governance. It then balances those selections with the performance of the indexes benchmark rate of return. Over the past five years, the fund returned an annualized 2.5%, but its expense ratio is 0.61% – higher than other SRI funds.
In the final analysis, ethical investing is really a question of values and this is a personal matter. Ultimately, investing and making money can be ethical endeavor if investors stick with their values in making investment decisions.
The article Ethical Investing for the Ordinary Investor originally appeared on Fool.com and is written by Kyle Colona.
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