Hinging Hopes on Faith-Based Investing

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The religious brand of faith-based investing fits into the general universe of socially responsible investing. However, the entirety of socially responsible investing requires a good deal of faith in the non-spiritual sense of the word, too. Socially responsible shareholders have to believe that over the long haul, stocks of good companies will prove to be good investments, financially and otherwise.

The basic definition of faith is belief in something even though there's little or no concrete proof available. However, in the case of the viability of socially responsible and sustainable investment, proof is emerging. New research from Harvard Business School shows that sustainable investing bears fruit for investors with the patience of Job.

Long-term outperformers
According to Robert Eccles and George Serafeim, the authors of the Harvard Business School study, sustainability-focused companies outperformed their peers over an 18-year period. The study tracked 180 total companies; the 90 companies that had implemented environmental and social responsibility initiatives grew each dollar invested since 1993 to $22.60 by 2011. Every dollar invested in companies that hadn't made this emphasis in their businesses grew to just $15.40 in that same time frame.

In a Bloomberg interview, the authors pointed out that this kind of investment strategy doesn't pay off in the short term, which probably explains why so many investors disregard socially responsible investing out of hand. It might take several decades for the strategy to bear fruit.

The authors didn't reveal the list of companies they defined as "high sustainability" or "low sustainability," but we investors can cull many resources to try to figure out companies that have put sustainability high (or low) on their corporate agendas.

The Dow Jones Sustainability Index has identified PepsiCo (NYS: PEP) , Pearson (NYS: PSO) , and Roche as 2011-2012 "supersector leaders," for example.

Forbes recently highlighted the 10 most sustainable companies in the world according to Toronto's Corporate Knights; Denmark's Novo Nordisk (NYS: NVO) topped the list, which didn't include even one U.S.-based company.

Last fall, Newsweek and The Daily Beast highlighted the least green companies in America, calling out companies like KeyCorp (NYS: KEY) and Monsanto.

We investors can also just pay attention to the companies that seem to be doing well by doing good, too.

Faith in the good
There are increasing signs that socially responsible investing is gaining influence and respect. For example, Reuters recently reported that socially responsible advising is gaining ground. Of 7,000 mutual funds Morningstar tracks, 197 are defined as socially responsible, up from just a few about 30 years ago.

Many investors may still be way behind this curve, though. Reuters also recently reported that investors may be the missing link when it comes to interest in doing good. At the recent Committee Encouraging Corporate Philanthropy meeting in New York, chief executives basically said that "consumers and employees [are] demanding companies do their bit for society, not investors."

They also suggested creating a "social responsibility index" to help show shareholders that philanthropic initiatives have real value. Western Union (NYS: WU) CEO Hikmet Ersek blamed short-term traders for the lack of investor interest in social responsibility. Creating an index for tracking "will definitely force the short-term investors to think differently. You have to give back to make more money. ... That has to be in shareholders' understanding."

Short-term, trader-centric investing is faithless indeed. Hopefully more investors will see the moneymaking and world-changing potential in socially responsible investing, and recognize it requires faith (and time) to make good profits in good ways.

Check back atFool.comevery Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.

At the time this article was published Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of KeyCorp and PepsiCo. Motley Fool newsletter services have recommended buying shares of PepsiCo and Western Union; creating a diagonal call position on PepsiCo and a synthetic long position in Monsanto; and writing a covered straddle position on Western Union. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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