If you believe that companies that are strongly committed to socially and environmentally sound practices will outperform their peers in the long run, then you would expect so-called socially responsible investment (SRI) funds to deliver superior returns to investors.

The trouble is, they don't. Sure, some years the mutual funds run by the Calvert, Domini, Parnassus and the rest do very well -- they excelled during the tech boom of the late 1990s because they tend to eschew heavy industry -- but other years, they lag market indexes. Over time, most track the broader market.

Over the three years ending December 31, 2009, for instance, among the big SRI funds, Calvert Social Investment is down by a cumulative 13.02 percent, Domini Social Equity is down by a total of 16.2 percent and Parnussus Equity Income is up by 0.14 percent. Only Parnussus performed significantly above the S&P500, which was down by 15.9 percent.

Why haven't they done better. Some of us have long believed that the problem with conventional SRI funds is that their definition of "socially responsible" is not nearly as rigorous as it could or should be.

Paul Hawken has been vocal in his critique of the SRI establishment, and since 2005 he has put his money where his mouth is. In a partnership with Baldwin Brothers, a Massachusetts-based investment firm, Hawken has overseen the Highwater Global Fund, a fund for qualified investors (i.e., the rich) that invests in companies "that have a clear sense of current global trends and future societal needs." His results have been impressive, to say the least.

Since inception in the fall of 2005, Highwater is up by a total of 52.55 percent. During the three years ended in December (the same period cited above), Highwater is up by a total of 19.75 percent. This is, in part, because Hawken and the other fund managers are very picky about what stocks they hold. More than 90 percent of the FORTUNE 500 fail their screens.

If you don't know about Paul Hawken, you should. He's a path-breaking thinker and influential writer whose books include The Ecology of Commerce (1993), Natural Capitalism (1999, with Amory and Hunter Lovins) and Blessed Unrest (2007). He's an entrepreneur who founded Erewhon and Smith & Hawken, and an advisor who has worked with to Wal-Mart and Ford. These days, he's focused on a startup in stealth mode called OneSun, a a solar energy company based on green chemistry and biomimicry.

I had the great pleasure of visiting with Hawken last week at his office in Sausalito, CA. Mostly, we talked solar. OneSun's chief science officer is John Warner, a pioneer of green chemistry, a longtime researcher at Polaroid and author (with Paul Anastas, now EPA's top researcher) of Green Chemistry: Theory and Practice. OneSun has hired more than a dozen PhD.'s and aims to produce "solar beneath the cost of nuclear and coal," Hawken says, but he's not ready to divulge much more yet.

Highwater is an equally interesting story, in part because it seemss to validate Hawken's critique of social investing. When his Natural Capital Institute analyzed SRI funds in 2004, he found that "90 percent of FORTUNE 500 companies were represented in their portfolios," as a group. (I did a brief story about this headlined Are Green Funds True to Their Colors? in FORTUNE.)

Some funds weren't very strict about who they let into their club. Others adopted silly screens. A few have been rethinking their approach–Calvert, for example, now offers a range of choices for investors, as it explains here. I'm a believer in social investing and an investor in Calvert and Domini funds.

But I think Hawken is on the mark when he writes:

Many of these [SRI] funds employ the term sustainability. This is a catchall term that…has come to mean less than it could and more than it should. At Highwater, we also use the word, but we believe that sustainability is a scientific concept, not a feel-good term. It is rooted in biology and physics, and describes the limits within which society can grow and prosper over time.

Hawken, as a result, is a tough grader. "We think Portfolio 21 [an environmentally-focused mutual fund based in Portland] has the best screens, and only 40 percent of their portfolio would qualify for ours," he told me.