Investors blend ethics with experience

"This [investment] has made the difference" between paying annual income taxes and not paying any, she says. "It was a federally approved write-off for something I felt was really good" for society, she says, especially at a time when urban rentals are fast becoming condominiums.

Elbert's money manager, the Chicago-based Social Equity Group, has welcomed an influx of seniors to its mission-driven investing in recent years. About 1 in 4 of the firm's 500-plus clients was a senior citizen in 2002. Now it's about 1 in 3.

"There has been an increase [in interest from seniors], especially in the years since the bear market," says Ron Freund, director of client management in the firm's Berkeley, Calif., office. Seniors concerned about preserving assets were aiming to steer clear of scandal-prone companies, he says, and saw social screening as "a risk-reduction benefit to social investing."

Joe Gerhards, a retired engineer in Concord, Calif., was fairly content with his conventional investing strategy until shortly after George W. Bush became president in 2001. As one who opposed Bush's policies, he became uncomfortable with what he saw as his "fundamentalist Christian" money manager's "pro-Bush" orientation and instead sought out two new money managers (Mr. Freund is one). He charged them to act on his concern that "corporations are basically ruling everything, and somehow we have to dampen that down."

Now he operates in a narrower universe of potential investments. His stocks and mutual funds include no producers of what he regards as "unhealthy" products: alcohol, gambling, weapons, tobacco, and nuclear power. He's also sought out companies such as Sharp for their commitments to developing solar power.

After these adjustments, Mr. Gerhards says his portfolio has been generating superior returns, averaging 8 to 9 percent annually over the past five years.

"After seeing the dotcom crash here a while back," Gerhards says, "I came to the conclusion that trying to maximize your money is probably a little less efficient [than accepting slightly lower returns] over the long haul." By investing in "socially conscious corporations, your risk level goes way down because they're not just looking at the bottom line. And it's certainly much more peaceful. I can sleep much better knowing I'm doing something to manage corporate responsibility," he says.

Looking back at his mistakes, Santosuosso, the Florida Southern professor, says more vigilant social screening might have sometimes helped keep him out of trouble. Example: He once lost 80 percent of his investment in an obscure Alaska gold mining company, one he says probably wouldn't have passed environmental muster.

But having high ethical standards can also lull investors into complacency, according to Santosuosso. He says he held for too long his stock in Nortel, a Canadian communications firm that joined the Dow Jones North America Sustainability Index this year. He watched as a profitable track record vanished. His lesson for other ethically minded investors: Don't get greedy - or self-righteous.

"The two greatest evils that plague investors, particularly socially responsible investors, are greed and fear," Santosuosso says.

SRI investors in particular "may sometimes start to think that because they are socially responsible, 'Surely, I wouldn't fall prey to that.' Hah!" Santosuosso says. "You're just as vulnerable as anybody else."

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