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Are You Being Socially Responsible?

How can you invest to make money with a clear conscience about your investment choices? The concept of “socially responsible investing” (SRI) – also known as socially conscious, mission, ethical, or green investing – has taken hold in this country. According to a recent report by the Forum for Sustainable and Responsible Investment, a nonprofit group known as US SIF, it represents more than one out of every six dollars of managed assets in the U.S., accounting for as much as $6.57 trillion.

But SRI requires more than a mere promise to recycle newspapers and bottles or to be kinder to strangers. SRI investors use three basic principles to guide their choices:

1. ESG. First and foremost, SRI advocates look to invest in companies that demonstrate values the advocates hold near and dear to their hearts. This might include beliefs about the environment, consumer issues, religious protection, and human rights, to name just a few. These areas of concern often are summarized as “environmental, social, and governance,” or ESG.

2. Shareholder advocacy. This involves attempting to discourage corporate decisions that could affect the core values of ESG adversely. Proponents hope to convince companies to improve their practices and policies and act as good corporate citizens while still delivering long-term growth. These goals may be accomplished through various means, including starting a dialogue, filing of resolutions for shareholder votes, educating the public, and attracting media attention to hot-button issues.

3. Community investing. This has become the fastest growing aspect of SRI with an estimated $61.4 billion in assets under management in 2014. With community investing, capital is directed to communities, here and abroad, that are seeking to provide services such as housing, education, health care, and child care.

Socially responsible investors come from all walks of life. They may range from people investing in mutual funds that specialize in choosing companies that have what are considered to be appropriate ethical and environmental practices to hospitals that won’t invest their endowments in tobacco companies to public pensions emphasizing a commitment to reduce greenhouse gas emissions and to factor climate change into strategic planning.

In particular, mutual funds taking these approaches have experienced rapid growth during the past few years. According to US SIF, the number of ESG mutual funds in the U.S. grew from 333 to 456 from 2012 to 2014, with assets under management increasing from $641 billion to $1.93 trillion.

Before you jump on the SRI bandwagon, make sure this is the right path for you. We can help you investigate all the possibilities.