Socially responsible investing―which goes by many names including ethical investing, impact investing, sustainable investing and others―is "an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact," according to Forum for Sustainable and Responsible Investment (US SIF).
Socially responsible investing is a big deal. Some estimates peg the amount of assets tied to such strategies at as much as $7 trillion in the U.S. and $21 trillion globally.
In the U.S., that's equal to 18% of total assets under management, according to a study by the US SIF. In the mutual fund world, $2 trillion is invested in socially responsible funds, with hundreds to choose from.
Now these strategies are making their way into exchange-traded funds, which may be the next growth area for socially responsible investing.
Nine Launches Just This Year
There are now 22 ETFs that could be considered socially responsible with a total of $1.6 billion in assets (they can be found on the ETF.com screener and database by choosing "Principles-based" under the "Selection" tab after clicking "More Filters"). Of those 22, nine launched just this year.
Each of these ETFs aims to invest in companies that do social good, but each does it in its own way. From focusing on environmental concerns to diversity to religious considerations, there's no one set of rules that governs these funds.
At the same time, in terms of performance, there's no clear-cut answer to whether socially responsible investing helps or hurts returns. Given the wide range of strategies employed, making comparisons is difficult.
David Kathman, analyst with Morningstar, summed it up by saying, "There will be times when a social screening will hurt you and times when it will help you, but over time it doesn't make a difference."