Making Good on Your Returns

Steve Schueth might abstain from alcohol, tobacco and gambling. But, he's not trying to convince you to do the same.

"I don't consider myself a missionary," he says. "We are not out to convert anyone."

Instead, Schueth's disciples find him. They believe he can line their pockets with the power of good rather than greed. And, as the rollercoaster ride once known as the stock market continues on another course of ups and downs, Schueth isn't doing so badly.

Schueth is no preacher and there's nothing pious about his work. As president of First Affirmative Financial Network, an independent investment advisory firm working in the field of socially responsible investing, Schueth puts together portfolios that integrate profitability with personal values.

"It's about investors wanting their money to do double-duty," he says. "Investors who want their money to make money and make a difference."

The idea hasn't been an easy sell on Wall Street. But, the financial crisis has changed the playing field. Socially responsible portfolios have experienced losses like everyone else. But compared to their competitors, these funds haven't sunk quite so fast.

"We've been hit. Everybody's down," says Schueth. "But, based on what I've seen so far, both in terms of our own portfolios and others I'm following, we're down less than most of our conventional competitors."

The numbers speak for themselves. Year to date, the Dow Jones has plummeted 33 percent. Compare that to Parnassus Workplace, an SRI fund specializing in companies with good management and employee relations. They are down 25 percent. On the opposite end of the spectrum, the ISE SINdex (yes, it's real) which specializes in supposedly recession-proof alcohol, gaming and tobacco stocks, is down 43 percent.

But, it's not just competitive returns drawing people to socially responsible investing - it's the desire to do more with your money.

Traditionally, the generous investor might donate part of his yearly return to charity. But, where does that money come from?

In the past, it was SINdex stocks that produced big returns despite the obvious social consequences.

For some, that idea didn't sit well.

"It's like the Catholic going to church on Sunday but being a sinner during the week," says Schueth.

So emerged socially responsible funds built from the grassroots by investors who wanted more from their money.

The investment formula is a little more advanced. Rather than just looking at profit margins and annual returns, extensive research is conducted into the quality of the company.

"There's now a whole other layer of research," says Schueth. "And, it's something that's helped us avoid exposure to certain areas."

Most notably was Enron. That company's business practices didn't live up to the standards of a socially responsible company. So, they weren't including in Schueth's and others portfolios. More recently, it was companies like Lehman Brothers and AIG - two of the biggest casualties of the credit crunch.

"There are different reasons why these companies didn't appear in socially responsible portfolios," says Schueth. "But a huge amount of it can be traced back to transparency."

Schueth explains the two companies didn't meet the funds standards for good business practices in their qualitative research. That has saved them from some major losses.

The philosophy is simple. Companies with smart, forward-thinking environmental and social policies developed them with smart, forward-thinking management teams. These companies tend to have better relations with employees, mitigate risk and build customer loyalty based on ethical values.

As an investor, it's easy to be tempted by the supposedly recession-proof stocks that don't sit well with our conscience. But, at a time when excessive greed has caused one of the worst financial crises since the Depression, it might be time to confess our sins, repent and readjust.