Skeptics abound about the whole concept of socially responsible investing. Some of them have merit. Others are just plain silly.

Statement: SRI does not perform as well as traditional investing
Status: Mostly False
Explanation: As more people become of aware of investing responsibly, a lot of naysayers point out that social portfolios and funds have underperformed market indexes over the last few years. This much is mostly true, but it is not that simple. Following the tech bust and subsequent recession, the market enjoyed a cyclical upturn in 2003, which continues to the present day.

In this cycle, as in most early-stage cycles, the stellar performers have been commodities-based companies, extractive companies, heavy industrial companies, and of course, oil companies. Many socially screened portfolios have not participated with these companies because they tend to rely on socially troubling practices. Commodity players (some, not all) are in developing countries paying exploitative wages. Heavy industry pollutes. Oil companies are a root cause of global warming emissions. But, since overall market indexes incorporate these companies, SRI indexes have trailed.

However, with an over-weighting toward technology and health care stocks, SRI portfolios outperformed for seven years prior to the last upturn. Most of the run-up in those cyclical stocks occurred in 2003. So, any study of the matter that does not take multiple cycles into account is just plain incomplete. The best scholarship on the topic, represented by the Social Investment Forum’s Moskowitz Prize, shows that there is no real difference between screened and non-screened performance over the last 25 years. The verdict is that SRI neither underperforms, nor overperforms traditional investing on a financial return basis.

Statement: SRI is more risky.
Status: False
Explanation: Adherents to the Dow Theory claim that by narrowing your universe of stocks through social screening, you increase your risk by decreasing diversification. The problem with that notion is that, by definition, managing a portfolio requires narrowing your universe of stocks. If that is too much work or too expensive, just get an index fund and be done with it.

Statement: Companies do not pay attention to social investors.
Status: Mostly False
Explanation: Skeptics point to alcohol, tobacco, and gambling companies, long the target of social divestment strategies, and show that the social divestment movement has not really made them change their ways. This is probably true. Divestment probably does not work when a socially repugnant enterprise is the core business. In these cases, activists can only hope that they behave more responsibly, such as has happened with cigarette settlements, better labeling, etc.

Social investment activism has been very effective with companies that have repugnant practices in the everyday pursuit of their not-especially-repugnant businesses. For example, Nike (NYSE:NKE) was once shamed as a pariah of sweat shop labor. Today, that company is one of the most progressive companies on the issue. Social investors recently persuaded large publicly traded financial companies such as Goldman Sachs (NYSE:GS) and Lehman Brothers (NYSE:LEH) to pledge to clean up their project financing guidelines. I could go on and on. If the company's core business is not socially IRRESPONSIBLE in and of itself, SRI can have a huge effect.

Statement: National divestment campaigns do not work
Status: Jury is still out
Explanation: Social investors like to take credit for forcing companies to divest from Apartheid-era South Africa. The economic isolation was one reason that the white leadership eventually caved. I, personally, think that SRI contributed to Apartheid’s downfall, but realize that there were several other issues that contributed as well. Alas, this is a subject for another post, or even another Green Options blogger.

However, anecdotally at least, one can look at occasions of forced divestment through government regulation to see how this works. Companies have been forced to divest from countries with oppressive political regimes for decades. Forced divestment from Cuba, Iraq, Iran, North Korea, Libya, the former USSR, and its allies frankly has a mixed record. Economic isolation definitely caused some communist regimes to crumble. In other cases (Cuba, Libya, Iran), sanctions have not had much effect on destabilizing regimes. And, in others (Iraq, North Korea), it could be argued that sanctions have caused suffering only among the population while actually strengthening the targeted regimes. Having an enemy to rally against while at the same time exploiting black markets created by sanctions helped Saddam hold on to power, and is probably doing the same for Kim Jong Il.

The current campaign to divest from Sudan is a current hot-button issue. In my opinion, this is a case where national divestment could work. Oil revenues are giving the genocidal government its power. Foreign oil companies make those revenues possible. Make no mistake. The ethnic cleansing going on Darfur is all about claiming oil-rich land. If it were just about claiming political power (as in Cuba, or North Korea), I would be more skeptical that financial investors could change the minds of maniacs.

Mark Brandon is the founder of First Sustainable, a Registered Investment Advisory catering to socially responsible investors. His weekly column appears in Green Options on Mondays.