NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, February 29, 2016

Socially responsible investing has come a long way from the days when it mostly meant not buying the shares of companies in controversial industries such as tobacco, firearms, alcohol or gambling.

Now, investors who favor this approach routinely consider a broad range of corporate behavior under the umbrella of so-called ESG factors—environmental, social and governance, as in corporate governance.

For many investors, socially responsible investing is now a guiding principle. The number of mutual funds and exchange-traded funds catering to those investors has mushroomed in recent years, with industry heavyweights BlackRockInc. and Goldman Sachs Group Inc. prominent among those launching funds last year.

Something else has changed, as well: Investors now expect a competitive return for investing with a conscience. Some have gotten just that; others haven’t. So amid the rising popularity of ESG investing, the question of whether it pays remains.