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

Friday, November 22, 2013

On paper, socially responsible funds sound fantastic. You pick a cause, and fund managers funnel your money into companies that further that cause. Everybody wins.

Yet while socially responsible funds may help idealistic investors sleep better at night, shareholders may not be getting their money’s worth.

And “socially responsible” means what?
One of the biggest problems with socially responsible funds is the subjective definition of the term. While many have attempted to define “socially responsible,” this phrase connotes different things to different people. While each fund must outline its criteria for selecting investments in its prospectus, some funds state up front that they will stray from those criteria when there’s profit to be had.