BellaOnline Forums Money Investing What Is Socially Responsible Investing? - Article

Do you know what socially responsible investing means? Socially responsible investing is a term used to describe investing in companies that conduct their business in morally and ethically appropriate ways.

What Is Socially Responsible Investing?

What types of products or services do you think would be deemed socially responsible? What about non-socially responsible or hazardous?

Investing in companies that make solar products would be one type of socially responsible company. Many parts of the world are going to solar since they do not have the infrastructure to put in other forms of energy production.

Philippe Cousteau, grandson of Jacques Cousteau, recently pioneered a new exchange-traded fund (etf) where part of the operating fee is donated to socially responsible causes. The Advisor Shares Global Echo ETF invests in socially responsible companies and sustainable practices.

This is an actively-managed fund with an expense ratio of 1.7%. Of that fee .40% is donated to charity.

1.7% is a higher fee so you may do better investing in a lower fee socially-responsible etf or mutual fund and making a separate donation. But it is nice to see a new product that is trying to do good in the world while helping the investor improve her own future.

Remember: it is wise to choose a low fee mutual fund or etf if you are going to invest. This applies so any type of investing including socially responsible.

How does one know if their investments are socially responsible if the investment company has a person pick their level of risk and nothing more? Do social funds have to follow guidelines? Is there a ranking system? How does a company qualify for such a title?

Deb,

What great questions. Let me answer them in order and give some helpful research suggestions.

First, any investment company you are considering or already investing with should be able to provide a prospectus and other written information that tells what the company invests in and the object of the fund or investment. So when an investment company asks your level of risk, you want to ask them what is being invested in at each risk level and ask them for written materials that show this. You want to pay particular attention to the list of fund holdings.

Second, as far as I know right now, each social fund follows its own set of guidelines to screen which companies it invests with. Again, these screening criteria must be set out in a prospectus or written material. Most of this information is available online at the company's website.

Third, I have yet to find a consistent ranking system. There are various financial magazines, such as SmartMoney, who will rank social funds based on performance. To find funds that are ranked on their social responsibility, you will need to check with some of the social and ethical organizations. I've found rankings through crocodyl.com, ranker.com, and PETA. PETA does a very nice job of listing the companies that do not cause cruelty to animals.

Finally, these same sites can offer their criteria for why they judge a company worthy of being socially responsible. Plus, fund company prospectuses will list their criteria of for choosing companies. Much of social investing is still reliant on our own personal judgement of what is socially acceptable.

I hope this answers your questions. Please feel free to ask me more or to clarify.

Another source I forgot to mention: socialfunds.com - here you can look up different mutual funds and see if they screen the main socially responsible categories.