Putting Your Money Where Your Heart Is.

• Position: Socially conscious investing - Brief Article

There is a debate that has been around since the 1970s, when socially responsible mutual funds first appeared on the scene. Investing in socially responsible funds or companies sacrifices returns and increases risk because you are automatically eliminating some of the best-performing companies in the world, argue critics. It is better to maximize your return and donate to the causes you support, they maintain. Advocates counter that you can invest according to your conscience and still do well financially.

In its broadest sense, socially conscious investing means choosing companies on a basis other than financial returns alone, particularly social and ethical considerations. For example, a certain tobacco company might be an excellent investment based purely on return, but many socially conscious investors wouldn't invest in it precisely because it produces cigarettes. They also might, screen out companies because they are involved in alcohol, gambling, nuclear power, or have a poor environmental or product safety record. (Early on, investors screened out companies that had connections with South Africa because of its racism.) They may invest in companies because they have good workplace practices, promote women and minorities, are involved in the community, have a strong charitable program, or any of dozens of other criteria.

Investors can screen companies either on their own or, as do many investors, use mutual funds to do the legwork. Each fund has its own social screening criteria as well as investment objectives, such as growth or income, large or small capitalization, etc., so it is important to read the prospectus and annual report carefully as you would for any fund. There are funds for nearly every type of socially conscious investor. Some focus primarily on the environment or labor...