So how does the performance of SRI funds compare with that of the orthodox capitalists who practice mainstream investing? In a nutshell, when you look at rigorous studies done by financial people for the past 15 years, no pattern of overperformance or underperformance emerges. "Socially screened mutual funds seem to have about the same performance as other funds," says Lloyd Kurtz, a senior portfolio manager at Nelson Capital Management, a division of Wells Fargo in Palo Alto, Calif. "The case has been made fairly convincingly that performance is competitive." Kurtz, a dyed-in-the-wool number cruncher who can cite every nuance in every study, lists them on his personal Web site.

Of course, performance depends on what you mean by the term "SRI." Most of the studies to date have been done on what Kurtz calls a "consensus type of social portfolio": either the Domini social index or something similar. There's been much less done on, say, Roman Catholic or Islamic investing, two other constituencies that do social screening.

But Kurtz, a conservative chap ever conscious of his fiduciary duties, may be understating his case. He also points out that the Domini index has beaten the S&P 500 by about 1 percent per year for the last 15 years. "Although the literature shows a tie -- and I think a tie is probably the right answer -- you have this anomalous outperformance over a long period of time," he admits.

Meir Statman, a professor of finance with no ties to the SRI industry at the Leavey School of Business at Santa Clara University, in Santa Clara, Calif., has been studying the performance of SRI funds for at least 15 years -- and is more willing to go out on a limb.

"Generally if you look at Domini, which is the oldest index going back to 1990, it has done better than the S&P 500, properly adjusted for risk levels and so on," he says. "At least we know the claim that you sacrifice returns by choosing socially responsible companies is simply not so."

But if social screening arguably makes good analytical sense from an investment perspective, the question arises: Does it really function to effect social change? Answer: Probably, but not the way most people think. And certainly not by itself. Imposing shareholder democracy is a necessary part of the game.

Companies have a bottom-line incentive for getting on with the "social" program. An increasing proportion of corporate value -- stock price, market capitalization -- is imbued in various intangibles such as intellectual property, brand name or goodwill rather than bricks and mortar. No doubt this is why, for example, Philip Morris changed its name to Atria and is now spending all kinds of money supporting do-gooder environmental causes and providing local sponsorships.

"The more important intangibles are, the more important your reputation is," Gorte explains. "If your reputation suffers, you can lose a load of value in a very short time. And it's not backed up by bricks and mortar that you can sell to liquidate the debt."

And management cares about the stock price.

This may explain why, as Gorte reports, companies now call every single time they are removed from the Calvert Social Index, clamoring to know what they have to do to get back on. Calvert also has had calls from companies not on the index but that are interested in being seen by Calvert as socially responsible. Calvert shares its research, tells them where they need improvement and says it will consider adding them to the index if improvement materializes, she says.

So what is the power of social screening? "It's really the bully pulpit of social opinion," she says. "It's about the company's social license to operate."

Steven Lydenberg, chief investment officer at Domini Social Investments, does not disagree. But he contends that the purpose of screening goes well beyond how one particular company is run. Take tobacco screening, for example. "It's not that tobacco should be illegal," he says. "It's that society is not dealing with the problem of tobacco in a way that makes sense. It's not a problem the company can solve. It's a problem that society has to solve. And we're using the statements on investments to say this is society's problem and we're hoping that the fact that we're raising it through divestments will keep it in the public eye."

The clearest example of this: the South Africa divestment movement of the l980s, a formative moment in social investing. The Rev. Leon Sullivan, an African-American on the board of General Motors, had developed a set of principles regarding labor practices in South Africa. If a company signed on to these principles, their labor performance was graded on three levels. "You had a wide range of options for divestment dealing with a range of political situations in various shades of gray," he recalls. "It allowed people to divest, which was front-page news. And it put international pressure on the government by going at it through this corporate route."

This no doubt frightens critics of screening like CalPERS administrator Steve Westley, who told Fortune magazine last December that social issues should be legislated -- no small task in a corpocracy, of course. "Vote with your heart," he said. "Invest with your head."

Never mind that such an artificial bifurcation is not just disingenuous but downright dangerous. In the real world, of course, the head and heart are part of the same corporeal body, and when the heart stops, the body dies. The same metaphor applies to corporate bodies, which ultimately derive their sustenance from the living planet and its inhabitants.

When all is said and done, many SRI professionals agree that "engagement" is a more effective tool for influencing corporations than selling stock. Engagement, which involves nuance and negotiation, is usually nonconfrontational. It begins with something as seemingly innocuous as writing letters and requesting information but can escalate into shareholder resolutions and proxy battles. A lot of engagement happens behind the scenes. "For every shareholder resolution we file, we probably have three to four engagements where we're asking the company to do something," Gorte says.

In fact, Calvert and many others file shareholder resolutions only when the conversations stop -- or hit a dead end. Even then, though, if negotiations over an issue continue and advocates are pleased with their progress, they withdraw the resolution. Remarkably enough, that happened this year. Environmental shareholder activists withdrew global-warming resolutions they had filed with five of six electric companies they'd targeted as the largest emitters of greenhouse gases when the companies agreed to produce reports on climate change published by the board or a committee of the board.

"We've been working with the companies to design the studies," says Sister Patricia Daly, executive director of the Tri-State Coalition for Responsible Investment, in Caldwell, N.J., "and agree on a variety of consultants just so that this is a legitimate report and liability numbers are accurate." A veteran environmental shareholder activist with 25 years' experience, Daly was the lead negotiator for a powerful coalition of social investors.

"For many years," she explains, "I've always said the most successful resolution is the one shareholders don't see because there's an agreement. [But] last year Ford broke that model. We had withdrawn the resolution because of some of the plans they had put on the table. Part of the withdrawal agreement was they went ahead and published the resolution in the proxy and we together issued a statement regarding what was going on.

"So now I say the best shareholder resolution is the one we've withdrawn but shareholders see it anyway," she adds.

But even if shareholder resolutions pass, they are not legally binding. Does that mean shareholder democracy is much ado about nothing? In many respects, unfortunately, yes. Monks, who has spent 20 years trying to change the system, does not exaggerate when he compares shareholder democracy to the political democracies of the former Soviet republic and Eastern bloc.

But you still need a stick when the carrot doesn't work. That is why Lydenberg argues that screening is also necessary. "Engagement without screening is voice without exit," he says. "You don't have to use it often. But you need the [threat of possible] exit to make the voice effective."

Most screening has not occurred on the scale of the South African divestment; nor can it. There are simply too many social and environmental issues to contend with. That's the bad news. The good news is that management quivers when the votes against its policies rise. "In the post-Enron era, any company that is not responsive to shareholders looks like it's got something to hide," says Chris Fox, director of investment research at the Coalition for Environmentally Responsible Economics, or CERES. "That only increases the scrutiny."

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