When the top brass representing the Christian Brothers Investment Services firm talks with clients about their belief in socially responsible investing (SRI), they begin their presentation with a slide that places every synonym of SRI on the left and a big picture of a duck on the right. In essence, the argument goes, why waste energy with exclusionary definitions? If it walks like a duck, and talks like a duck, then it’s a duck.

Call it SRI, refer to it as sustainable¹ investing, or do a chicken and egg game with SRI and ESG (environmental, social, and governance) investing; the central tenet is that in this current tumult, it makes sense for well-rounded advisers to open their eyes and minds to this approach to investing — from a fiduciary perspective and from a relationship management angle as well.

Charles Lowenhaupt, who runs his family’s wealth management firm in St. Louis catering to the ultra-high-net-worth population, tells a story that relates indirectly to SRI. “After 9/11, I met with a few families, all of whom were worth north of $100 million and whose politics were on the conservative side. Almost unanimously, the idea was to make their money work toward the betterment of the collective — of the world at large. Sure, the kids still wanted a jet, but the prevailing attitude was to allow their assets to create a better world, both locally and globally.”

“I question the central premise that investing is about nothing more than making money,” says Steve Lydenberg, CFA, chief investment officer at Domini Social Investments. “But the beauty here is that, even for those who would disagree with that statement, the SRI approach would work for them as well.”

In an environment where the folly of investing in complex securities shrouded in secrecy is evident, an investment approach steeped in transparency, such as an SRI screening process, suddenly makes a lot more sense. “We are, of course, in a very unusual time, and one in which the virtues of SRI are even more noticeable from an individual investor’s perspective. This is a move away from a strictly short-term view — away from the fast-paced speculative nature of today’s financial markets — and toward rewarding companies that favor a long-term approach with quality and forward-looking management.” A key piece of the SRI overarching strategy is to put pressure on management to address issues of shareholder concern via shareholder power, proxy votes, and other forays into corporate governance.

Lydenberg also sees a green trend but cautions those who see this as new. “Green and clean tech predate Obama. But what I think we will see is growth in the green/clean subgenre of public infrastructure, specifically in transportation and water-based projects.”

Those behind SRI tend to find common ground by focusing on the extra-financial criteria used to make investment decisions, paying special attention to environmental, social, and governance considerations. The discipline, known by some as ESG investing, weighs a company’s commitment to easing global warming, its waste-management practices, and its policies dealing with corruption and bribery, among other things. The idea is that when companies handle these factors in a favorable manner, they are more sustainable and thus more likely to be profitable in the long term.

“The largest impact of social investors through direct shareholder activism, mission-based investment decisions, and the creation of SRI benchmarks and related financial products has been to bring ethical issues to corporate management/boardrooms and to show that these issues have potential material impact for the company,” explains Eric Fernald, director of research at KLD Research & Analytics, an independent research firm based in Boston. “There is still not enough attention paid to key environmental issues and human rights catastrophes, and the political influence of large corporations and their ability to influence the rules of the game continue to be both well known and under-reported.”

Gary Matthews, a New York–based financial adviser with First Affirmative Financial Network, believes that concern over the environment has become so mainstream that there’s no turning back. In fact, he believes that because of the “economic mess we’re in today,” burned investors will be much more ready to embrace anything that will raise ethical standards of the industry as a whole. “Look, if business as usual has turned out to be, well, not so great after all, then any other approach should be given a look, especially SRI, which the world is realizing is not synonymous with sacrificing returns.”

According to the Social Investment Forum, there are now more than 260 socially and environmentally screened mutual funds, so the task of building a diversified SRI portfolio is getting easier. As always, a well-diversified portfolio requires assets in large- and small-company U.S. and non-U.S. stocks and bonds. One can find SRI mutual funds in these categories.

For the passive investor, there are ETFs (exchange traded funds) that give the investor access to SRI. Barclays Global Investors’ iShares offers the KLD Select Social ETF (symbol KLD), and The Vanguard Group offers the FTSE Social Index Fund (symbol VGTSX). There are a number of actively managed SRI funds from PAX World Mutual Funds, Calvert Investments, Parnassus Investments, Domini, and other mutual fund families.

Hard numbers can be tough to pin down, but a recent study by Meir Statman and Denys Glushkov suggests that investors can do well and do good at the same time by adopting the best-in-class method for their portfolios while refraining from using negative screens.² They explore the return advantage for investors who tilt toward companies with high scores on social responsibility characteristics but who steer clear of excluding stocks of ”shunned” companies, like tobacco, alcohol, gambling, firearms, military, and nuclear operations.

Their findings have several implications. First, they offer fresh evidence that investors who hope to use social research metrics to improve their returns may be on the right track. Second, they suggest that both social investors and their critics have been right: Social metrics may be useful in obtaining returns, but the sectors social investors have avoided have, in many instances, delivered superior performance over time.

Michael Jantzi, president of Jantzi Research, a Toronto-based investment research firm that specializes in SRI analysis, has an answer: Stop striving for perfection. “This is not about perfection,” he says. “There’s no such thing as a perfect company. Social investors want to make money, of course, but on the environmental and social side, they want to have some input into seeing companies improve.”

Taking a hard look at SRI funds can be seen by clients as taking investor outrage and anger seriously. “My clients are agitated and angry about any number of situations,” explains Richard Stein, a Denver-based adviser. “It is in my own best interest to educate myself and them regarding investments that, from a social welfare standpoint, pull the rope.”

Everything from the Madoff mess to executive bonuses has rattled confidence and raised questions about the direction many companies are headed. “The array of fundamental challenges — from corporate governance and regulatory oversight to climate change and energy diversification, to name just a few — is daunting,” says Bennett Freeman of Calvert Investments, a mutual fund company that specializes in SRI. “Investors must take advantage of this opportunity to engage policymakers to build a much more accountable and sustainable future.”

Investment is no more than believing that actions one takes today — buying and selling — can make for a better future. This is the case whether the investor is interested in enacting change by way of plowing money into a company or by affecting policy by way of shareholder activism, investing with community development organizations, or investing with firms like Christian Brothers that specialize in the growing sector of faith-based SRI funds. Most faith traditions share that belief, although their actions and beliefs have traditionally been tied to social or natural capital, rather than financial capital.

The total assets under management in faith-based funds has grown from about less than $500 million 11 years ago to more than $31 billion today, according to Morningstar.

“This group of funds has definitely emerged as a growing and distinct subset of the SRI world,” says Michael Herbst, mutual fund analyst covering faith-based funds for Morningstar. “What we’re seeing is a growing awareness among individual investors that there may be faith-based offerings that coincide with their own spiritual beliefs, perhaps more closely than there had been in the past.”

Morningstar follows nearly 100 faith-based mutual funds that are run by almost a dozen fund families. They include small, mid, and large caps; fixed income; value and growth; and sector funds. They invest according to Christian and Islamic principles, and although they are part of the social investing family, they might well contain stock in companies that wouldn’t be found in a more general SRI portfolio.

So, not only is incorporating nonfinancial considerations in the investment process in vogue and in demand; there are more ways for the wealth manager to implement the strategies.

Bob Margolis is a freelance financial journalist.