If you read enough SRI marketing literature, you will come to recognize that everyone expects market rate returns.  "Obviously," you must be muttering, "who would advertise in any other way?"  Even if some investors are willing to overtly take a cut in returns on their investment in order to invest "responsibly", most are not, or more importantly, don't have the luxury to do so. 
For SRI to grown as both a reputable and profitable industry, investors must be convinced that they will receive good returns.  Yet SRI is meant to be a long-term strategy, and most of the arguments for why to invest sustainably relate to the long-term harm of ignoring environmental, social and governance issues. It is therefore difficult to ignore the short-term success others find from investing differently.  

This brings me to a recent International Herald Tribune article "'Vice' stocks beat socially conscious ones this year."  My first thought, "Which year exactly did socially conscious ones beat vice stocks?"  Come on, tobacco, guns, alcohol and oil?  Who is going to be surprised that those companies do well?  But then, right after that, I read the following article out of England, "Put your cash where your principles are."

I bring this article up because it proves the point that there are many considerations to take into account when one invests, and every investor needs to understand her own priorities going in.  Even if market returns are advertised, certain SRI funds will not necessarily provide strong short-term gains the way vice stocks will. There are definite trade-offs. 

Even CalSTRS, part of the vanguard of responsible investing, is rethinking its tobacco ban.  While the company originally didn't impose the ban due to health reasons, health issues are the reason why there is a debate on removing the ban.  A lot of financial gain for the teachers' pensions was sacrificed from the ban, but do teachers feel comfortable supporting companies that create significant health problems for children?  Every investor must deal with the consequences of the upside and downside of their investing actions. 

As a side note:

There are more things written than I care to mention about whether these funds do or do not provide market or above market rate returns.  Inevitably the answer is some do, some don't.  Stocks with Scruples (which I have mentioned before) does a good monthly round-up of the big funds.  These are the results in this month's posting:

Stock with Scruples' Sources: Bloomberg, Calvert Group, Ltd., KLD Research & Analytics 

Disclosure: The author has no connection to any of the aforementioned organizations and does not own stock in any SRI mutual fund or vice fund.

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