"Being socially responsible means different things to different people; however, in the mutual-fund world, it refers to funds that combine progressive 'social' mandates with investment criteria," explains fund expert Mark Salzinger.

In The No-Load Fund Investor, he suggests, "We have no problem with the concept of socially responsible funds for an investor who wants his investments to reflect his values, provided that the funds have also provided good risk-adjusted returns." Here, he looks at two favorites.

"Funds that call themselves socially responsible usually avoid stocks that don't meet progressive, or politically liberal, standards of environment impact, workplace environment, and diversity/tolerance and community involvement.

It's a lousy time to be in the financial services, but the Wall Street Journal reports (subscription required) that the Neuberger Berman Socially Responsive Fund is seeing investor inflows -- a claim that very few mutual funds can make.

Like most SRI funds, the Neuberger Berman Fund screens out all companies involved in tobacco, alcohol, gambling, nuclear energy and defense. After that, the fund seeks out companies with strong balance sheets and good growth prospects and then screens based on more proactive criteria like workplace diversity, environmental impact, etc.

The SEC announced that it will fine Pax World Management $500,000 for violating its own restrictions on buying stocks. Pax World is a 'socially responsible' investment company, operating mutual funds that do not invest in companies which produce harmful things like weapons, alcohol and tobacco.

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 (SRI) is no longer relegated to a tiny corner of the investment landscape; indeed, according to the Social Investment Forum, SRI now accounts for $2.7 trillion, up more than 18% since 2005," says Chuck Carlson.

Here, the editor of The DRIP Investor offers five stock that both rank high for their social responsibility and also stand out based on more traditional earnings and valuation analysis.

"The Social Investment Forum estimates that more than one in every 10 dollars under professional management in the U.S. is involved in SRI investing. What is driving the growth in SRI?

"One factor is the increasing numbers of women and younger investors among the investor populace have fueled demand for SRI investments.

"In addition, we see an increased focus on environment, social, and corporate governance issues. Further, widely publicized stories concerning global warming as well as various corporate governance issues, have caused many investors to reconsider how they deploy their investment capital.

Investors will want to take at least a quick read through Patricia Aburdene's recently revised book Megatrends 2010: The Rise of Conscious Capitalism. Aburdene has isolated seven trends she sees will drive business and investor behavior for the near future.

1) Power of Spirituality in individual lives. People do not want their work and their personal morality to be in opposition to one another.

2) Strengthening of Conscious Capitalism that is responsible to both shareholders AND stakeholders.

3) Leading from the Middle in which middle managers acquire more voice and moral authority over business decisions.

4) Spirituality in Business leading to a wider acceptance of faith at work.

5) Values Driven Consumers who shop with their values as well as their dollars.

Coming soon to investor email and mail boxes will be annual reports and proxy voting materials, complete with this year's shareholder resolutions. Hot topics this annual meeting season include the ever popular "say-on-pay." Shareholders are incensed that average or even sub-par executive performance and decision making is being handsomely rewarded with gigantic salaries and perks while they make due with crumbs. According to a recent article in CFO Magazine, 76 shareholder proposals dealing with executive compensation have made it onto the ballot.

Also on many ballots are shareholder resolutions dealing with socially responsible investing, particularly on matters revolving around the issue of global warming and/or climate change. So far, 56 shareholder resolutions have made it onto ballots. At least nine companies have taken steps to negate the need for such shareholder resolutions by rolling out policies addressing how the companies will cut back on greenhouses emissions and otherwise "go green."

As this is a presidential election year, there are at least 50 shareholder resolutions to force companies to disclose political contributions. These resolutions probably won't gain the necessary traction to force any action, but any resolution favoring greater corporate transparency is to shareholders' advantage.

New this year are numerous resolutions requesting senior management to disclose a company's exposure to subprime mortgage losses and secondary purchases in the mortgage market. This is a hot topic among investors right now, and many pension fund investors have taken hits. Look for union members to pressure their pension funds manangers on this one.

How will you vote on these subjects?

The Social Investment Forum has issued a new report showing that assets under management at firms employing socially responsible investment (SRI) screens grew by 18% to $2.71 trillion [subscription required] in the two-year period ended in December of 2006.

That compares to growth of just 3% for total assets under professional management. Public outcry over environmental issues and the crisis in Darfur have led many firms to adopt at least some elements of socially responsible investing.

The Wall Street Journal reports that there were 154 SRI funds in the U.S., managing $159.2 billion in assets as of the end of 2006 vs. 151 funds and $148 billion in assets two years earlier.

SRI sometimes gets a bad rap: some pundits, including Jim Cramer, have argued that it would be better to make money investing in evil companies and then donate some of the proceeds to charity. However, in his book The SRI Advantage, Peter Camejo shows that socially responsible investing has actually historically outperformed traditional investments. Perhaps you really can do well by doing good.

What intrigues me about SRI is that it's gotten several of my socially conscious friends saving/investing for their future when, without the allure of saving the world, they might not have.

To learn more about SRI and research funds, visit SocialFunds.com.

With news that American Idol contestant David Hernandez (I personally think Kady is the next idol) will remain in the singing contest despite reports that he used to be a nude performer at a male strip club in Phoenix, the question is whether the show itself should get rid of him, like they have done in the past, as well as how should investors treat publicly traded companies like Ricks Cabaret Int'l Inc. (NASDAQ: RICK)?

American Idol executive producer Ken Warwick told TVGuide.com he was unaware of the singer's past before the news report but that it would have made no difference. "We're never judgmental about what people do to earn a living. They've got to put food in people's mouths," he said. Historically, the way the show deals with these kind of controversies is a mixed bag. Last year, Antonella Barba appeared in provocative online photos and she remained. But Frenchie Davis, a Season 2 singer, was dropped after reports that as a 19-year-old she appeared on a website designed to appeal to men interested in underage girls.

There is an obvious difference. Neither Hernandez nor Barba ever did anything illegal. Though many viewers believe that what they have done is morally reprehensible, it is still not a crime, and why shouldn't they have an opportunity to try and change their lives.

While there are many idealistic people in this world, few actually do things to implement their opinions and ideas in a pragmatic way. John Montgomery, the founder and CEO of Bridgeway Funds is certainly not one of these people. From reading an excellent Barron's article (subscription required), I've learned more about compassion and philanthropy in an investing leader than I have from any other article this month. In addition to learning about compassion, I learned a very interesting remedy to emotional inefficiency that exists in nearly every investor.

Every year, Montgomery's company gives half of its profits to charity. While many companies do have "philanthropy" departments, very few give significant amounts of money compared to the company's profits. I've also found that many companies simply do this for tax advantages -- this is not the case with Bridgeway. Each of the company's 24 employees could select a charity to receive at least $20,000.

Montgomery also limits his compensation to seven-times that of his lowest employee. For those not familiar with the disgusting executive pay situation in this country, the average CEO makes 531 times the pay of his lowest employee. While many, including myself, just complain about this fact, Montgomery is actually doing something about it: "Executive compensation is way out of whack in this country, so we have our own system to reduce any possible animosity in the firm."

I like the idea of socially responsible investing (SRI). Many socially responsible funds have amassed terrific track records, and the values-based philosophy will appeal to many investors who otherwise might not be as interested in the market. But with the popularity of SRI on the rise, it's no surprise that some funds will use the SRI moniker to generate interest, although they really aren't providing a a good product for investors.

A case in point would appear to be Integrity Mutual Funds, discussed in a column by Lawrence Carrel over at TheStreet. The fund is tiny, with just $46 million in assets, and I am impressed with the manager's commitment to social justice. He even speaks with PETA to learn about how companies treat animals!

Here's the problem with the fund, summed up by Carrel: "The fund charges a steep front-end load of 5.75%, which tops Lipper's average maximum load of 5.28%. Its expense ratio is 1.56%, topping Lipper's median expense ratio of 1.21%."

Are ethical investors deluding themselves? With so many choices and so few ways to validate performance data and to make comparisons between companies and funds, some experts are calling for a system overhaul in socially responsible investing. Just about everybody agrees that ethical investing means staying away from companies that make war, whiskey and cigarettes. But what about nuclear power? It creates cheap energy without churning out greenhouse gases. But there is the messy issue of radioactive waste.

Joe Nocera in The Trouble with Socially Responsible Investing in the International Herald Tribune explains the problem. He says ethical investment experts oversimplify the world's problems. They give investors a false sense that they're putting money into companies that consistently perform in ethical ways. They rarely do. "It allows investors to believe that their money is only being invested in the good guys, and they take foolish comfort in that belief," he writes.

To illustrate the dilemma Nocera points to the oil industry. Exxon Mobil Corp. (NYSE: XOM) -- the company that socially responsible investors love to hate -- has a strong worker safety record, but it employs executives who until recently failed to admit global warming existed. Then there's the Valdez, whose crash resulted in one of the largest human-made environmental disasters on record. Exxon still owes the state of Alaska a couple of billion dollars in punitive damages for that debacle.

Saturday's New York Times has an interesting piece on socially responsible investing, and investors who are successfully integrating their values into their investing without sacrificing their returns. While everyone is familiar with standard SRI funds like Paxworld and Parnassus Investments, there are a few really interesting ones that you probably haven't heard of:

Amana Mutual Funds: I'm Jewish, but I'm tempted to convert after taking a look at the jaw-dropping returns achieved by this fund, which screens out stocks that are not consistent with the principles of Islam. For the past 10 years, the Amana Growth Fund has earned an average annual return of 13.13%, compared to 8.42% for the S&P 500. This handily beats the vast majority of mutual funds, earning the company a coveted five-star rating from Morningstar, the leading evaluator of mutual fund performance. So what does Islamic investing mean? Amana won't invest in any company involved with liquor, pornography, gambling, or banks. Why banks? Under Islamic law, the lending or borrowing of money with interest is forbidden. Amana also avoids companies with heavy debt loads because of this. That practice helped the fund get out of Enron stock before the company imploded.

The Vice Fund: This one is the antisocial responsibility fund. They've invested, with tremendous success, in gambling, tobacco, pornography, and guns.

The Ave Maria Catholic Values Fund: This is another very successful fund which invests based on Catholic principles. They don't touch the traditional sin stocks, but also avoid companies that grant marriage benefits to same-sex couples.

So as you can see, values-based investing isn't just about labor practices or the environment. Whatever your values happen to be, there is probably a mutual fund to match them!

Many investors are concerned with corporate social responsibility, the precise meaning of which is ambiguous as are methods to analyze and evaluate such responsibilities. The late Milton Friedman and his followers have argued that the term "corporate social responsibility" is meaningless. Businesses are profit making entities, no more, no less. They are responsible only to their shareholders. Such a position is increasingly hard to defend. Today most companies want to be considered good corporate citizens concerned for the environment, for their workers, and for the communities in which they operate.

Concerned investors will want to read Kate O'Sullivan's article "Virtue Rewarded" in the October issue of CFO (www.cfo.com). O'Sullivan interviews CFOs from various companies, all of whom are concerned about minimizing risk, staying ahead of negative publicity, and maintaining a positive reputation while not sacrificing bottom line profitability.

After reading this article, investors may want to read "Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility" by Michael Porter and Mark Kramer in Harvard Business Review, December 2006 (www.hbr.org -- subscription required). Porter and Kramer argue that the attitude of CFOs reflected in O'Sullivan's article is exactly what is WRONG with current thinking of corporate social responsibility. Company executives set up a business vs. society model in which long-term sustainability is sacrificed to quarterly profit figures. Companies waste literally millions of dollars each year supporting feel-good, positive publicity projects of dubious long-term benefit that have nothing to do with the strategic mission of the companies. Companies need to consider their social responsibilities from an operational and strategic standpoint, as a vital component of their value chain. What does a company already produce? Where in its operational structure are negative social impacts generated? What can the company do to reduce or even eliminate those negative social impacts? When a company ceases to react defensively to perceived negative publicity or activist shareholder proposals and integrates social responsibility into its operational processes, that company generates an enormous competitive advantage because it integrates the health of the business into the health of the society in which it operates.

Porter and Kramer argue that strategic corporate social responsibility responses must create shared value for both the company and society simultaneously. A company must focus on a small number of large impact initiatives integral to its own core operations. Management must measure potential social rather than stakeholder satisfaction. Generic social do-good programs do not have a measurable long-term impact on either the company's competitive position or the health of the society. One company that practices strategic corporate social responsibility as part of their operational structure is Whole Foods Market (NASDAQ: WFMI), which not only sells high-quality organic foods, but also uses environmentally safe cleaning products, recycled materials in store construction, wind energy credits equal to 100% of its electrical use, and biofuels in its trucks. Other companies mentioned are Toyota (NYSE: TM), due to its concentration on hybrid auto technology; Sysco (NYSE: SYY), which supports family farms and locally grown produce in its stores; General Electric (NYSE:GE) for "ecomagination" that focuses on water-purification technology; and Unilever (NYSE: UN), which is concentrating on products to serve the needs of the poorest populations. Corporate social responsibility is an idea that will only grow in importance. Investors may wish to consider it as an integral part of their due diligence investigation.

This weekend's Financial Times featured an interesting piece by Chris Brown-Humes entitled "Global warming means climate of change for companies." The author suggests that companies like airlines and cement-makers will suffer, although "an airline that markets itself as using a climate-friendlier fuel might benefit." He further predicts that climate change funds and climate change indices will develop.

Saturday's New York Times offered up a list of Sites for the Socially Conscious (http://www.nytimes.com/2007/02/03/technology/03online.html?_r=1&oref=slogin). Investors may want to take a look at dotherighthing.com, which works like Digg.com, allowing users to vote on the social responsibility of various corporations. At sustainability-indexes.com, you can look at the Dow Jones list of socially responsible/environmentally friendly companies.

Advances in technology and solutions to global warming may offer compelling opportunities for socially responsible investors. I expect that we'll be seeing a lot more about it in the financial press in the months and years to come.

Socially Responsible Investing (SRI) has skyrocketed over the past ten years. 10% of all investments, approximately $229 trillion, qualify as SRI. There are currently 221 SRI mutual funds available for individual investors. So what, more specifically, is SRI -- other than an attempt to combine money and morals, not always an easy mix? All SRI options agree upon three broad requirements.

1. There must be some sort of screening process that examines a company's business practices to see if it meets with the social agenda of investors. Social research is just as important as fundamental financial research in SRI. One of the more common screens is to examine companies in terms of their environmental records, as well as their human rights records. Companies marketing themselves as SRI companies generally have a positive gender equity policy, and are heavily involved in social welfare programs in the communities in which they operate. There are no agreed-upon criteria for SRI other than those imposed by potential investors.