Socially responsible mutual funds have been around for over three decades. They offer an opportunity for all investors to invest in companies that are concerned about the world around them, attempting to profit while doing the right thing for the environment, the community and the people impacted by their business. They hold fast to their beliefs about the world around them and their place in it. These mutual funds, often referred to as a socially responsible investments (SRI), now comprise about 10% of the total invested dollars in mutual funds. Is this an investment you should consider?

What is socially responsible investing?

Simply, socially responsible investments (SRI) employs three key elements when choosing companies for their portfolios. Here are some of the attributes these types of funds look for and what they consider to be key factors for social responsibility.

One of these key areas of research comes in screening the companies for certain qualities. When businesses are screened, the process looks for certain operational characteristics which can include the way the company acts in its community, how it treats its employees, the products it produces and whether all of these impact the world around them. If they are located overseas, the screening process will look at human rights factors and the impact the presence of those companies have on the environment around them.

There is also a consideration for shareholder advocacy. It asks many of the same questions of the business done in the screening process but takes it to a more direct level. Shareholder advocacy looks at the way the company speaks to the issues of the world around them and how they conduct their business as a corporate citizen. This top down approach, considering everything from executive pay to labor resolutions to how it address climate change and pollution plays a significant role in how companies are considered for inclusion in the group.

And lastly, the SRI vetting looks at how these businesses invest in the world around them. This might be a simple as backing basic banking products to supplying capital or sponsorship to vital services in the community.

Who invests with these considerations in mind?

A surprisingly diverse group has gathered around this type of investing since it was first introduced in 1990. That first SRI fund, the Domini 400 index is still in existence and has performed well as the movement has gained momentum. Investors can be individual or institutional. Universities, non-profit groups, religious institutions and even public and private pensions funds have sought the peace-of-mind that these funds offer investors.

What are some of things SRI considers for its investors?

To be considered, a company needs to take a holistic approach to how it presents itself to the community, the country and to the world. If a company can contribute to the overall quality of life, it is worth considering. Activities it will shun include involvement in guns to tobacco, poor pollution practices and clean-ups of past transgressions or how they treat their workers in overseas factories.

Can doing the right thing be profitable as well?

All investors seek to earn a return for their investment. Investors seeking to it in a socially responsible way are no different. In fact, it is the increased enthusiasm from both the individual and institutional investor that may be changing the face of capitalism. Businesses are beginning to understand that there is value in doing what is right not only for the people that work for them and the surrounding areas in which they operate but also globally.

What is the fastest growing segment in SRI?