Recently a reader wrote to me with an intriguing question: “I’m very interested in the Couch Potato strategy, but I have an added hitch: I’d also like to engage in socially responsible investing. I know there’s the iShares Jantzi Social Index Fund (XEN) for Canadian equities, but I’m not sure if there are other Canadian indexes out there, or what is available in terms of US, international, and emerging markets.”

For those who aren’t familiar with this idea, here’s a definition from the Social Investment Organization, a Canadian non-profit: “Socially responsible investment (SRI) is the inclusion of social, environmental and governance considerations into the management and selection of investments.” Companies commonly excluded from SRI indexes are those in the business of tobacco, weapons, and those with poor environmental performance, human rights violations, or poor employee relations.

Turns out that only one other index fund tracks the Jantzi Social Index, which is the most common SRI benchmark in Canada. The Meritas Jantzi Social Index Fund is one of seven socially responsible mutual funds run by a Winnipeg firm with close ties to the Mennonite community. It’s the only index fund in their lineup and it has a management expense ratio of 1.94% and a hefty front-end load or deferred sales charge.

Couch Potato investors who are looking for socially responsible investments outside Canada might consider a couple of iShares ETFs: the FTSE KLD Select Social Index Fund (KLD) and the FTSE KLD 400 Social Index Fund (DSI) both hold large-cap US companies, including Microsoft, Johnson & Johnson, IBM and Proctor & Gamble. The MER of both funds is 0.50%.

I was unable to find an ETF that tracks a socially responsible index of international equities. Neither is there a passively managed bond fund based on SRI principles.

So, for our socially responsible Couch Potato, the options are limited. The Meritas fund is way too expensive—charging 1.94% for an index fund should violate anyone’s ethical standards—so that leaves the iShares ETFs for US and Canadian equities. Actively managed but low-cost mutual funds from Phillips, Hager and North will have to do for the international equity and fixed income holdings: see the Community Values Global Equity Fund (MER 1.33%) and the Community Values Bond Fund (MER 0.65%). In fact, the PH&N Community Values Balanced Fund charges just 1.07% and covers all the bases with Canadian equities (36%), US equities (13%), international equities (13%), and bonds and cash (38%).

If you’re considering joining the ranks of socially responsible investors, make sure you dig into the holdings of SRI funds. Remember, your idea of social, ethical and environmental responsibility may not be the same as the fund manager’s. The biggest components of the Jantzi Social Index today, for example, include the Big Five banks (over 40% of the index), which are hardly the beacons of social responsibility. Another major component is Suncor, one of Canada’s biggest emitters of greenhouse gases. KLD even holds Halliburton, which has made $17 billion from the Iraq war.

As Ian McGugan has written in MoneySense, “Trying to express your ethical viewpoints through your stock holdings is a bit like trying to express your musical tastes through your choice of a hacksaw. In other words, it’s fundamentally the wrong instrument for your purposes.”