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Socially responsible funds promise to help you do good as you do well. They're half-right.

Since any hope of making the world a less appalling place through old-fashioned politics seems like a holdover from more innocent times, lots of substitutes are now offered. Indeed, many can be found within the pages of Mother Jones.

A few years ago, Mother Jones ran an excerpt from the Council on Economic Priorities' Students Shopping for a Better World (May/June 1993), a book that rated deodorants and cereals according to the social sensitivity of their manufacturers. Mother Jones advertiser Working Assets Long Distance seductively proffers the temptation of doing good just by making a phone call; it contributes 1 percent of its call revenues to organizations such as Oxfam America and the Pesticide Action Network. This is all no doubt marginally better than nothing; it also flatters soulful consumers into thinking they can do progressive politics without leaving the home or mall.

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Moving from the mundane realm of daily consumption to the commanding heights of capital investment, we encounter the highest flowering of this coupon approach to politics: "socially responsible investment" (SRI). There are many varieties of SRI; all apply some social criteria to the deployment of money. Some funds advertise a greenish cast (Clean Environment Mutual Funds Ltd. touts its environmental standards); others are more specific -- the IPS Advisory's Millennium Fund invests according to a philosophy that holds "the use of sentient animals for any purpose other than voluntary human companionship to be a violation of their rights."

According to the Social Investment Forum, the industry's trade association, nearly one-tenth of institutional investment dollars in the U.S. today (about $1.2 trillion in 1997) are under some sort of social screen.

SRI's proponents claim that excluding corporate criminals from your portfolio requires no economic sacrifice; as the saying goes, you can "do well by doing good." The performance of the Domini 400 Social Index, an average of 400 "socially responsible" stocks developed by the Boston-based firm Kinder, Lydenberg, Domini & Co., indicates that SRI does just fine at doing well (at least as long as our increasingly suspect bull market holds). The Domini 400 has returned an average of 18.5 percent a year since its inception in May 1990 through the end of August 1998. (The usual benchmark, the Standard & Poor's 500, has returned 16.8 percent during that same period.)

But what about the "doing good" part?

Let's look at some of the components of the Domini Social Index. Among the major stocks in the Domini 400 are Atlantic Richfield (Arco), Bell Atlantic, Intel, Mattel, Merck & Co., Merrill Lynch, Microsoft, Southwest Airlines, Tele-Communications Inc. (TCI), and Wal-Mart.

Precisely what social vision emerges from these names?

Arco may not have owned the Valdez (Exxon isn't in the index), but it still punches lots of holes in the Alaskan wilderness; Intel and Microsoft are two of the nastiest near-monopolists of our time (and Intel is a furious polluter); Merck is doing its best to patent the genetic material of the world's rainforests; Bell Atlantic and TCI (recently bought by AT&T) aren't monopolists, strictly speaking, but they're pretty close; and Wal-Mart is the low-wage destroyer of countless Main Streets across America (and, increasingly, the rest of the world).

Other SRI portfolios turn up some stunners as well. The Parnassus Fund does own shares in Hewlett-Packard, known for its progressive workplace policies, but it also owns 225,000 shares in Intel. Parnassus also boasts 300,000 shares in Toys "R" Us, the monstrous toy chain. Last year, the Federal Trade Commission found the company guilty of price-fixing and forcing toy manufacturers into an exclusive sales agreement.

Since when is Toys "R" Us, Intel, or Merck "socially responsible"?

By far the most common screen, according to the Social Investment Forum, is simply not investing in tobacco -- 84 percent of socially responsible portfolios rule out the stocks of death-stick makers. Other common prohibitions: gambling (72 percent), weapons (69 percent), booze (68 percent), and birth control/abortion (50 percent). Some, including myself, might find screening that supports a pro-life position to be the height of social irresponsibility, but Catholics are prominent in the SRI field.

Actually, I'm enough of an immoralist to think that smoking, drinking, and gambling are not only not the most pressing social problems in America today, they even have their charms. (Are today's SRI portfolio managers really just Carry Nations in Armani suits?) Still, one person's recreation is another's road to perdition -- it is exactly this subjectivity that is the most nagging flaw of attempts to guide investment via social responsibility. Obviously, one's definition of "socially responsible" is often determined by one's social standing. (The fundamentalists who boycotted Disney for producing "Ellen" were pursuing their own vision of socially responsible business, too.)

For my own part, I believe the wretched treatment of workers is one of the more pressing social problems of our day, but just 25 percent of SRI portfolios have a labor screen. The relative standing of tobacco to workers in SRI is an interesting indicator of demographics: For most investors, unions represent an obstacle, not an incentive. After all, stronger unions and higher wages mean lower profits, and lower profits mean lower stock prices. SRI by nature can't do anything to address the profoundly lopsided distribution of wealth in America; it has no choice but to target the rich, since they're the ones with money to invest. The top 10 percent have 68.5 percent of the country's net wealth.

This demographic skew also helps explain the Social Investment Forum's heavy emphasis on "shareholder rights." But who are these shareholders? And why do they deserve these "rights"? They contribute little or no capital to the companies whose stocks they own -- quite the contrary. Thanks to dividends and stock buybacks, they take out money by the bucketful.

Peter Kinder, president of Kinder, Lydenberg, Domini & Co., defends socially responsible investing, saying it raises the visibility of corporate behavior in the investment community, bringing in principles other than profit maximization. The SRI world, he says, isn't one of black and white but of shades of gray (though to my eyes, some of the Domini 400 names are written in a very dark shade of gray).

I point this out not to indict the managers for hypocrisy, but to indict the whole enterprise as troubled from the start. It attempts to cordon off a small segment of the market -- an investing "safe space" -- yet such purity is not simply impractical, it's actually impossible in a capitalist system.

To make money, you must invest somewhere; nowhere is perfect. Unless you are willing to forgo high returns and invest instead in positively "good" ventures like land trusts and co-ops, the choice will always be the lesser of two evils. Maybe there's some way in which Arco is a nicer oil company than Exxon, but buying the stock of one rather than the other does nothing to reduce the nature-killing, lung-rotting combustion of oil. (At least people choose, in some sense, to smoke tobacco; it's pretty hard to avoid tailpipe emissions.)

Proponents of all SRI varieties might argue that it's not the funds' measurable social benefit that matters so much as the lack of social malfeasance by the corporations in which they invest. Kinder concedes there are some troublesome names in his index; he defends his effort by saying that they're attracting attention to "the best of each industry."

This admission suggests that socially responsible investors should adopt the slogan, "Do well by not doing such pure bad." Less catchy, more truthful…and probably even more profitable.

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