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Thanks to millennials, socially responsible investing is now a big deal.

Investment funds dedicated to sustainable investing rose 33% during 2014-16 to $8.72 trillion, says the Forum for Sustainable and Responsible Investment.

Millennials no doubt played a big role in this. More than 70% of them say they favor sustainable investing, according to Morgan Stanley. Its a trait they picked up from their baby-boomer parents.

This is all well and good, but many sustainable investing devotees, young and old, have a blind spot that needs fixing. Blame it on the so-called experts in the industry.

They make a big deal of avoiding fossil fuel companies and polluters. The environment isnt the only thing that needs minding. We also need a sustainable democracy. Without that, it doesnt matter how clean the environment is. Life could get ugly.

And make no mistake, sustainable democracy is at risk. No, this isnt another Donald Trump rant. Democracy was precarious before he came into office.

A key turning point was in 2010, when the Supreme Court ruled against government restrictions on corporate political spending in Citizens United v. Federal Election Commission. Since companies have deep pockets, their interests may trample those of average voters.

In short, its hard to say which did more harm, Citizens United or the Gulf oil spill, as baby boomer Jackson Browne wrote in his song The Long Way Around.

Whatever you think about Citizens United, its not going away soon. The best thing to do now is to learn how to contain the potential damage. For socially responsible investors, this means favoring companies with these three traits in the arena of campaign contributions:

Political spending transparency

Policies governing how they donate

Strong board oversight of managements campaign contributions

Above all, these qualities help shareholders understand how companies are contributing to politicians. If investors disagree, they can sell their shares or challenge boards of directors and management. Openness and board oversight help prevent managers from secretly going rogue with campaign contributions that work against shareholder values.

All of this seems fairly obvious. So its odd that the sustainable investing experts often put little emphasis on investing in sustainable democracy.

A list of sustainable investing themes from Arabesque Asset Management, which you can find in this note, appears comprehensive. It includes 30 topics of interest everything from carbon emissions and community relations, to diversity and CEO pay. What about political campaign contributions and investing in sustainable democracy? Nowhere to be seen.

In a way, this isnt surprising, since definitions of sustainable investing are all over the map.

The first stop for investors wanting to invest in sustainable democracy is the Center for Political Accountability (CPA) website. CPA examines the websites of S&P 500 SPX, -0.33% companies to gauge whether they have 24 qualities that CPA says companies need in the realm of campaign contributions. The big picture is that CPA is looking for the three qualities I mentioned above: transparency, policy and board oversight.

CPA then ranks S&P 500 companies on a scale of 0-100. You can find a spreadsheet with rankings here. This ranking serves two purposes:

It tells you as an investor which companies are doing the right thing. Its a handy guide to investing in sustainable democracy.

The rating system also pressures companies to change their ways if they arent up to snuff.

It is pushing companies to more broadly disclose their political spending and political spending policies, where no disclosure is required by law, says Bruce Freed, CPAs president and founder. There are a growing number of companies that take our index seriously that are looking to strengthen the way they oversee and disclose political spending.

A big question for investors is whether sustainable investing hurts performance. One theory says it should help. Consider companies that are more responsible because they are more transparent and they take the long view on matters like the environment. They may also naturally make wiser long-term business decisions and attract more customers because of good will.

Research results vary. Arabesque Asset Management claims 80% of academic studies found the stocks of companies with good sustainability practices outperform other stocks. Morningstar thinks social impact funds gained about 5% annually in the past 10 years, lagging behind other funds by about a percentage point a year.

Morgan Stanley seems to be in the middle, concluding in this note that sustainable investments have usually met, and often exceeded, the performance of comparable traditional investments.

I think investing in a sustainable democracy may well give you an edge, for two reasons.

1. Better governance

I had a hunch that companies ranking high in CPAs system also have solid corporate governance, which can work in your favor as an investor. So I asked Institutional Shareholder Services (ISS) to help check. ISS assigns companies a corporate governance rating, called ISS QualityScore, based on four factors: board structure and independence, executive pay policies, shareholder rights, and audit and risk oversight.

Heres what we found. The top 48 ranked companies in CPAs system (those with a score of 90% or higher) had a median corporate governance risk rating of 4 on the ISS 1-10 scale, where a lower score is better. The bottom 48 companies, which all got a 0% rating from CPA, had a median ISS rating of 7.5. (A higher ISS score is worse.)

This makes sense, because companies that are generally more open and transparent with shareholders tend to get better governance scores, says John Roe, head of ISS Analytics. But he also cautions the sample size is too small to draw definitive conclusions on whether CPA scores are a proxy for governance scores.

2. Better results

To test how youd do if you used CPAs system as a sustainable democracy investment guide, I looked at how well CPAs top 48 companies did against the Guggenheim S&P 500 Equal Weight ETF RSP, -0.45% I chose this ETF because I used a simple equal weighting of the companies, so this ETF is the fairest comparison. (In contrast, the S&P 500 Index that most people track uses a market-cap weighted system. This means that smaller companies have a smaller impact on overall index returns.)

The results are remarkable.

CPAs top 48 stocks beat the market by 7 percentage points over the past three years. From the start of 2011 through Feb. 21 of this year, CPAs stocks returned 41.5% compared with 34.3% for the Guggenheim S&P 500 Equal Weight ETF. (For reference, the market-cap-weighted S&P 500 Index did a little better. It advanced 36.1%. But the CPA stocks still beat that.) All returns include dividends.

One pushback on my performance test might be that the CPAs list of top-ranked companies may have over-represented companies in sectors that just happened to do well during that time frame. So I looked at a different time frame, the past five years. The results were even better. CPAs top 48 stocks beat the market by 20 percentage points. They advanced 133.3% vs. 113.3% for the Guggenheim S&P 500 Equal Weight ETF (and 108.9% for the market-cap-weighted S&P 500 Index).

Some of the best-performing stocks in this group, in either time frame, included: Bank of America Corp. BAC, -0.75% Morgan Stanley MS, -0.56% J.P. Morgan Chase & Co. JPM, -0.95% Visa Inc. V, +0.17% Altria Group Inc. MO, +0.01% Time Warner Inc. TWX, -0.65% Microsoft Corp. MSFT, +0.03% Boeing Co. BA, -0.69% Becton Dickinson & Co. BDX, -0.11% Celgene Corp. CELG, -0.11% Edwards Lifesciences Corp. EW, -2.69% and Tesoro Corp. TSO, +1.14%

Some of the weaker performers included: International Business Machines Corp. IBM, +0.23% Coca-Cola Co. KO, -0.71% Qualcomm Inc. QCOM, +0.02% Praxair Inc. PX, +0.11% Schlumberger Ltd. SLB, +0.02% Gilead Sciences Inc. GILD, -0.89% Bristol-Myers Squibb Co. BMY, -0.51% Express Scripts Holding Co. ESRX, -2.14% Noble Energy Inc. NBL, +0.27% and Exelon Corp. EXC, -0.69%

Before you conclude that my mini-study proves you can do well by doing right, as the clich goes, a few qualifiers are in order. Statisticians would point out that theres no attempt to tease out what caused the performance difference. Correlation does not equal causation. The sample size is small. And there are only two time frames.

Plus, my test for outperformance against a rising market might be the wrong way to look at this. Heres what I mean. Lets assume Im right that CPA scores are a way to measure corporate governance. The nuance here is that quality corporate governance is really better at suggesting possible protection against downside risk, as opposed to outperformance, says Roe, the head of ISS Analytics.

Even if investing in sustainable democracy didnt help you outperform the market, does this really matter?

After all, if socially responsible investing is about putting money into the stocks of companies that share your values, then maybe its OK to give up some gains in the process. People give up money and time whenever they donate to charities or volunteer. There is a cost to those activities. But its offset by the benefit of knowing you might be improving the world. Why should investing be any different?

A lot of millennials seem to agree with this. Over half of them in the Morgan Stanley study I cited above said they get it that sustainable investing may involve some trade-off in financial gain yet they are some of the biggest fans of this style of investing.

At the time of publication, Michael Brush had no positions in any stocks mentioned in this column. Brush has suggested BAC, JPM, CELG,KO, GILD and BMY in his stock newsletter, Brush Up on Stocks. Brush is a Manhattan-based financial writer who has covered business for the New York Times and The Economist group, and he attended Columbia Business School in the Knight-Bagehot program.

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