Today is Earth Day, and although its usually associated more with conservation tips and civic activities than it is with personal finance, socially conscious investing isn't a niche market. There are nearly 150 sustainable and responsible mutual funds being offered, according to US SIF—The Forum for Sustainable and Responsible Investment.
Typically, these SRI funds will only invest in companies that pass screening; for example, those that, in the view of the fund, have committed to clean technology. And they'll often also avoid other companies, for example, tobacco companies, or firms with huge carbon footprints. But not all of these SRI funds place the same (or in a few cases, any) emphasis on the environment. Some are primarily concerned with social issues, or being Sharia compliant.
Though they work within an inclusion/exclusion framework, SRI funds otherwise behave like other actively managed mutual funds, with the same types of investment objectives, and in some cases, alas, the same high sales-load charges as some other non-SRI funds.
In many cases, the holdings of most SRI mutual funds aren't going to be targeting a particular sector or industry. For investments targeting a particular theme, you'll need to consider exchange-traded funds, which typically hold fewer stocks than mutual funds, and are often focused on a particular industry. A fund research firm, Morningstar, currently identifies 21 socially conscious ETFS, most focusing or either clean energy or water.
But there are drawbacks to most of these investments: expense and performance. Although cheaper than SRI mutual funds, for an ETF these socially conscious funds are expensive, costing an average of 0.75 percent a year, or $7.50 for every $1,000 invested. And if you like volatility, socially conscious ETFs are for you. The two largest Solar energy ETFs, Guggenheim Solar (ticker TAN) and Market Vectors Solar Energy (ticker KWT) doubled in price in 2013, but lost two-thirds of their value two years earlier.
—Chris Horymski
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