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Investing with a social conscience

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Ginny Stanley, principal in charge of financial services at REDW Business & Financial Resources LLC, in Albuquerque, N.M., says that before jumping into socially responsible investing, it is important for investors to define what is important to them and what they really want from their investments.

"We want to find out what they mean by socially responsible investing -- for some people, socially responsible investing means 'green,' but for others it has a broader definition," she says.

How are companies screened?
Different companies use different criteria for their screening process, but most combine a review of financial performance with an assessment of various social factors.

For example, Domini has a specific set of standards that cover the relationship of corporations to their interactions with communities, customers, employees, investors, supplies and ecosystems.

In addition to several other screens, Calvert looks at seven social criteria with regard to companies.

Seven social criteria
Governance and ethics. Workplace.
The environment. Product safety.
Human rights. Rights of indigenous people.
Community relations.

Sierra Club Funds have a number of investments that are selected based on the club's environmental guidelines. Similarly, Winslow Green Growth focuses primarily on environmental sustainability issues.

Returns, costs, marketing claims
Like any investment, socially responsible investing requires research, and investors need to do their homework when it comes to selecting socially responsive investments of any kind. Investors also should decide how much of their portfolio they want to dedicate to socially responsible investing.

The Social Investment Forum's Web site offers information for individual and institutional investors, including research reports on fund companies, consumer trends and returns.

In the past, one of the main concerns surrounding socially responsible investing was that investment performance was not competitive with conventional investments.

"No question that returns were an issue," says Hilton. "Historically, when screens were applied, you were left with sector bets, and those bets didn't always give shareholders best performance."

He says that now, as demand increases and as screening methods become more sophisticated, performance issues are no longer such a concern.

Stanley suggests that while many funds have competitive performance, some asset classes lend themselves more readily to socially responsible investing than others. She advises consumers interested in socially responsible investing to consider the option of using socially responsible investing for certain asset classes, not necessarily for the entire portfolio. As with any mutual fund, investors should read each fund's prospectus in detail to understand performance, portfolio construction and costs.

Teplitz agrees, saying that as the industry has grown, a thorough analysis of each fund company is more important than ever. Look past potential advertising claims of "green," or "responsible," she advises, which may be more of a marketing ploy than reality, to see if the fund companies operate according to their claims. "Peel back and make sure you get more than just the marketing message."

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