I guess the return on cluster bombs and cancer sticks was just too tempting.
Pax has issued a statement in which CEO Joseph F. Keefe apologizes for the violation of its self-imposed rules. (He also makes it clear that it occurred before he became CEO). Keefe states that investors were not harmed financially.
By way of explanation, Pax cites the SEC's Settlement Order, which states that between 2001 and 2005, two of Pax's mutual funds bought stocks "that either were not socially screened prior to purchase or had failed a screen. Of these, 10 securities (out of approximately 650 purchased by Pax World Funds during that time period) actually failed the social screens and therefore should never have been purchased."
Socially responsible investing is a growing field with an interesting history. Some historians argue that its roots lie in moral objections to the slave trade in the 1700s, especially among Quakers. In 1758, the Philadelphia Yearly Meeting of Quakers formally banned investing in the slave trade, thereby creating the first investment restriction aimed at improving society. Following John Wesley, some Methodists have long avoided investing in "sinful" companies. And more recently, both liberal and conservative moralists have railed against investing in evils as diverse as diamonds, children's clothing and gay cartoon characters.
Morality and money making have always been uneasy bedfellows. Admirable as it is, the problem with socially responsible investing is that sin continues to pay handsomely, and its hard to imagine that changing any time soon. (For a good example of this sad fact, see Peter's Cohan's W-Industrial Complex, a basket of stocks focused on the oil and arms industries, right-wing media and luxury goods for the rich; needless to say, these stocks have done very well over the last few years.)