The traditional definition of sin stocks has been simple: booze, cigs, scantily-clad women, and gamblin'.

But now some traditionally socially responsible companies are backtracking. According to The Wall Street Journal, KLD Research & Analytics, a socially conscious indexing firm, has launched a new Global Sustainability Index (subscription required) that uses a point system of sorts to include or exclude companies based on environmental impact, corporate governance, and the nature of their products. Some companies that sell liquor or operate casinos have made the list. Even Pax World recently dropped its zero-tolerance policy for alcohol and tobacco stocks.

The shift is a result in the shift in the definitions of morality and social responsibility. Originally, many of these funds targeted social conservatives who found gambling and pornography distasteful. The target market now seems to be the environmentally and socially conscious.

Of course, there are different funds for people with different ideologies. There's even a special fund for Democrats! For my profiles of a few off-beat funds investing based on SRI criteria, check out Invest with Your Politics.

In the past, I've had a certain ambivalence about socially responsible investing. If it caught on, it could have the power to change the way that companies are run. But in its current manifestation, or so I thought, investors could very well sacrifice returns at the altar of the conscience. But I was mistaken and, after reading The SRI Advantage, I've jumped on the SRI bandwagon -- and now institutional investors are too.

According to Thomas Kostigen at Marketwatch, "Nearly 200 institutional investors representing some $9 trillion in assets say they are conducting at least some type of social shareholder engagement in their investment policies. This group of investors belongs to the Principles for Responsible Investment, part of a United Nations' program to institute ethical conduct among global corporations, and the findings of how they invest are being released for the first time in a new study."

It gets better: "For example, just over half of these institutional investors are using their significant clout to require the companies in their portfolio to use standardized environmental, social and governance reporting."

Some firms are pressuring companies to make more full disclosures about their environmental and social impact in their SEC filings. It seems that Wall Street may be getting ready to exercise its enormous power to push for corporations to be better citizens.

If you're interested in shifting a portion of your portfolio toward SRI principles, check out SocialFunds.com.

Missouri's state treasurer, Sarah Steelman doesn't think pension funds should invest in companies doing business in terror-sponsoring nations. While her state has decided against agreeing to that,12 states have passed laws that in some way restrict pension funds from investing in companies with questionable practices. Here's the most interesting part about Steelman's campaign, from the Wall Street Journal:

Last summer, Ms. Steelman unveiled what she calls a "terror free" fund -- a small fund, intended as a model, designed to avoid investments in nations considered terror sponsors. In its first eight months of existence, her fund has returned 27%, she says. "People said fund performance was going to suffer. We've shown that's just not true."

While a strong track record over such a short period of time managing an amount of money far smaller than most pension funds isn't proof of anything, there is a substantial body of evidence to indicate that socially responsible investing and investment policies excluding companies with poor ethics do not inhibit returns. Consider the performance of Domini 400 Social Index: Since its inception in 1990, that index has averaged an annual return of 12.28% versus 11.71% for the S&P 500.

I like Ms. Steelman's idea, and public pension funds can make a powerful statement by divesting not just companies dealing with Iranian, but any company that is engaging in questionable business practices. I've seen no evidence that ethics inhibits returns. As Alan Greenspan once said "Material success is possible in this world and far more satisfying when it comes without exploiting others."

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!

The world's largest energy company may be joining the world's biggest retailer in cleaning up its environmental act. Last year, Wal-Mart Stores Inc. (NYSE:WMT) made great strides in offering organic foods, sustainability initiatives, and offering a broader array of energy-conserving products. Today Exxon Mobil Corp. (NYSE:XOM), which has long been seen as, to quote the Financial Times, "the number one global warming villain," is trying to become -- at least in appearance -- more environmentally friendly.

Amid growing concern about global warming and climate change, along with sharp criticism of former Bush Administration official (and now ExxonMobil employee) Philip Cooney's role in censoring scientific reports on global warming, the company is trying to shift the focus toward its partnerships with Toyota Motor Corp. (NYSE:TM) and Caterpillar Inc. (NYSE:CAT) to research more fuel-efficient options. It has pledged $100 million to Stanford's Global Climate and Energy Project.

ExxonMobil's attempts look pretty lame so far. These appears to be clearly PR-driven decisions to avoid looking completely out of the mainstream on global warming. Unless XOM makes real changes, I think the public will continue to see them as just PR stunts.

At Time Warner's annual stockholders meeting last week in Atlanta, the buzz was all about Ted Turner's Garboesque I-vant-to-be-alone speech.

What you may have missed was TWX's new Corporate Social Responsibility (CSR) report.  The report addresses Time Warner's role as good corporate citizen in a variety of areas, including diversity, journalistic integrity, child protection online, content accessibility, consumer privacy, ethics and governance, employee growth and development, public policy, the environment, supply chain management, and philanthropy.

All of that is well and good, but I want to ask: who is going to take responsibility for the Warner Bros./Matt Leblanc vehicle Joey?

[image from CBS News]