The consensus: socially responsible investing is good for the pocketbook

Thanks Danielle for finding this great article from Worldchanging on the financial edge that social responsibility, transparency, and oversight bring to the investing process:

"SRI [Socially responsible investing] mutual funds have begun to outperform their "hard-headed" competitors. That's right, investing in doing good makes you more money. As Green Money Journal reports, 16 of the 21 funds with $100 million or more in assets "achieved the highest rankings for performance from either or both [financial analysts] Morningstar or Lipper," compared with only 32% of all mutual funds.

But here's the twist: it turns out that not only does SRI make investors more money - standards of transparency, accountability and social responsibility make corporations more money.

Some of this competitive advantage is due to the fact that environmental efficiency and good working conditions, while a hit to the short-term bottom line, often pay themselves back handsomely. Companies with the guts (and shareholder pressure) to make investments in sounder practices often do better than their short-term focused competitors at finding and implementing innovations as well.

But it's not all compact flourescent lightbulbs and childcare. Socially responsible businesses are also run better as businesses. And, it turns out, financial transparency (being honest and open with your books) and corporate democracy (allowing shareholders and even employees a strong voice in decision-making) are excellent predictors of both profitablity and shareholder return."

The article cites articles by Barron's and the Quarterly Journal of Economics that aren't available online, but to read more about the profit advantage of investing right, you check out our earlier post on the Financial Times's coverage of this new awareness.