When Dan Morhaim of Owings Mills wants to invest money in stocks, he doesn't look solely at a company's profitability. He also examines its record on the environment and on fair treatment of women and minorities.
If a corporation shows up poorly in those areas, Dr. Morhaim, a emergency medicine physician at Franklin Square Hospital, puts his money elsewhere.
Dr. Morhaim, 42, is one of a growing number of people who try t measure a company's conscience before investing. Either by refusing to support companies that are engaged in practices they don't approve of, or by steering their money toward mutual funds or companies that have been screened for social issues, these investors try to align their investments with their values.
With approximately $550 billion invested in socially screene securities, such investing, which first came into vogue during the Vietnam War, is now making its way into the mainstream.
"People are becoming more conscious of all the actions they ca take as individuals" to effect change, said Sacha Millstone, a vice president of Ferris, Baker Watts Inc., an investment firm with offices in Baltimore and Washington. Ms. Millstone has specialized in socially responsible investing since 1984. "This is just another way they can make a statement as an individual."
These days, the environment tops the list of issues that concern most social investors. Following close behind are dealings with South Africa, armaments manufacturing, employment of women and minorities and involvement in the nuclear power industry, Ms. Millstone said.
Some investors also screen companies for product quality consumer relations, corporate citizenship and employee relations.
Surprisingly, socially screened investments often perform as wel or better than unscreened investments, some experts claim.
For example, the Domini Social Index 400, a measure of the aggregate performance of 400 stocks whose companies have been deemed socially responsible, has matched strides with the Standard & Poor's 500 since the index was founded last year.
Some mutual funds have done equally well. Last year, the singl best-producing balanced mutual fund in the nation was the Pax World Fund, according to John Schultz, president of the Social Investment Forum. The fund screens out companies that are engaged in armaments manufacturing, as well as the tobacco, alcoholic beverage and gambling industries.
"In the long run, social investors are better rewarded," sai Ritchie Lowry, author of "GOOD MONEY: A Guide to Profitable Social Investing in the '90s" (W. W. Norton & Co. Inc., 1991) and editor of GOOD MONEY newsletter. "You're buying into companies that treat their employees well, provide good, valuable services and don't pollute the environment. As a result they have productive employees and happy customers, and they aren't sued by counties and states."
But Stephen Siegel, an independent certified financial planne who helps people invest their funds in a socially responsible manner, said socially concerned investors may initially have to relinquish some rate of return.
"Generally, companies that [these investors] invest in are mor long-term oriented," said Mr. Siegel, whose office is in Pikesville. "They may not produce that hot quarter that will make everyone rush out and buy the stock. But over a period of time, they will probably progress."
The first step in becoming a socially responsible investor is picking your ethical priorities, Mr. Siegel said. Decide which issues are of the highest importance to you, whether it's the environment, treatment of minorities and women or dealings with South Africa.
Next, determine your financial goals, deciding whether security, high income or the ability to make large capital gains is your top priority. Your decision will affect the type of investment you seek.
Your next step depends on how involved you want to be in the investing process.
Do you have the time and inclination to search out investments that will meet your ethical and financial goals? If not, you'll want to consult a financial adviser who has some experience and know-how in socially responsible investing. A directory of such advisers is available for a fee from the Social Investment Forum in Minneapolis, Minn., at (612) 333-8338.
If you already have an adviser, ask the adviser to look over your portfolio to determine how well it conforms to your ethical priorities. The adviser can help you withdraw your money from objectionable investments and redirect it to more acceptable ones.
If you're prepared to go it alone, there are plenty of resource available to help you in your quest. The Social Investment Forum NTC can provide you with a free list of socially responsible mutual funds. You can then request a prospectus. Books such as "Socially Responsible Investing: How To Invest With Your Conscience by Alan J. Miller" (Simon & Schuster, 1991) and Mr. Lowry's "GOOD MONEY: A Guide to Profitable Social Investing in the '90s" also provide information on funds.
If you have a larger sum to invest and want to delve into stocks you can subscribe to the Domini 400 Social Index, a list of 400 stocks of publicly traded firms that pass broad-based social screens. It's up dated monthly by Kinder, Lydenberg, Domini & Co. Inc., an investment adviser in Cambridge, Mass. For subscription information, call the company at (617) 547-7479.
Another route to follow is activism. As a shareholder in a "irresponsible" company, you can try to influence corporate behavior by introducing and supporting shareholder resolutions or writing letters to management.
As Alan J. Miller notes in "Socially Responsible Investing," las year investors controlling more than $450 billion sponsored more than 300 resolutions on social responsibility.
In your quest to become a socially responsible investor, don't try to find the perfect corporation, author Ritchie Lowry recommends.
There isn't any such animal. Aim instead to locate the best of the industry, the company with the fewest blemishes on its record.
As Dr. Morhaim said, "It's impossible to be pure about everything. I just try to be . . . practical."
Also, be wary of mutual funds that bill themselves as environmental. Many aren't. Study a copy of the company's financial statements to see if there's any evidence of environmental wrongdoing, said Ms. Millstone.
Here's a partial list of socially responsible mutual funds:
*Pax World Fund: (800) 343-0529. This 11-year-old balanced fund does not invest in companies that are engaged in manufacturing defense or weapons-related products, as well as those that are involved in the tobacco, alcoholic beverage or gambling industries. It seeks out companies with fair employment and pollution control policies, as well as firms producing life-supportive goods and services (such as health care, food, and housing). 1989 total return: 24.81 percent.
*The Dreyfus Third Century Fund: (800) 645-6561. Established i 1972, the Dreyfus Third Century Fund avoids companies with operations in South Africa, investing instead in corporations with good industry records for equal opportunity, safety, health, and environmental impact. Consumer protection and product purity are also important. 1989 total return: 17.34 percent.
Calvert Social Investment Fund: (800) 368-2748. With more than $270 million in assets, this 9-year-old Washington, D.C.-based fund is the largest of all socially responsible fund groups. It offers four different investment portfolios: the Money Market Portfolio, the Managed Growth Portfolio (1989 total return: 18.72 percent), the Equity Portfolio (1989 total return: 27.45 percent) and the Bond Portfolio (1989 total return: 13.56 percent).
All screen out companies that produce nuclear energy or manufacture equipment to produce nuclear energy, deal with South Africa and manufacture weapons, alcoholic beverages or tobacco products. Preferred companies produce safe products and services, encourage employee participation, offer good equal employment opportunities and display good labor bargaining records.
*New Alternatives Fund: (516) 466-0808. As its name implies, this 9-year-old fund seeks alternatives to current sources of energy, petroleum and nuclear power. As a result, it invests at least 25 percent of its assets in stocks of solar, geothermal and other alternative energy industries. It also tries to "find new areas of investment in pollution control, recycling, and clean water," according to Socially Responsible Investing, and screens out investments relating to atomic energy. It avoids companies that do business in South Africa. 1989 total return: 26.04 percent.
Alyssa Gabbay is a free-lance who is a frequent contributor to The Sun.