Many investors see socially responsible investing as deliberately sacrificing profits for the sake of personal values. Yet increasingly, the practice of investing in a socially responsible manner has evolved to give you a chance to do the right thing and still make a handsome return in the process.
The evolution of socially responsible investing is readily apparent in exchange-traded funds that appeal to its advocates. Although past practices emphasized filtering out "bad" companies that failed various tests, the philosophy that many socially responsible ETFs now follow focuses much more on making positive investment choices that balance profit potential with other important considerations. That has played a vital role in turning the socially responsible investing business into a small but growing piece of the overall investment industry, with about $100 billion invested in such funds out of roughly $7 trillion investing in mutual funds and ETFs in total.
How to be responsible
One challenge that socially responsible investors face among their ETF choices is how to find the ETF that best matches their own personal investing philosophy. To give you a sense of what's available in the socially responsible investing front, I looked into a few of the ETFs that use it to determine which approaches they take toward social responsibility in investing.
The iShares MSCI KLD 400 Social ETF
Similarly, the iShares MSCI USA ESG Select Social ETF
You don't have to rely on ETFs that label themselves as socially responsible in order to achieve your personal financial goals. For instance, the PowerShares WilderHill Clean Energy Portfolio
The key is to understand that social responsibility means different things to different people. Many have recently moved more toward sustainable investing practices, which give even huge multinational corporations a chance to demonstrate their worthiness by incorporating holistic approaches toward internal business management.
With sustainability, a host of factors -- including employee relations and working within communities and customer bases -- creates an overall picture that guides a company in all of its business dealings. For instance, in its list of the world's 100 most sustainable corporations, the self-described "clean capitalism" magazine Corporate Knights gave top honors to Statoil
Some ETFs even seek to track sustainability directly. For instance, ESG Shares North America ESG Index ETF
Invest your way
Despite the popularity of socially responsible investing and the corresponding rise of mutual funds and ETFs aimed at those who want to practice it, it's difficult to find a one-size-fits-all approach that lets you buy a single socially responsible fund that you can rely on to cover all of your investing needs. These ETFs can be helpful as pieces of your overall investing puzzle, but most investors will find that only by mixing these funds with specifically targeted investments can you be sure that your portfolio reflects all of your beliefs.
If socially responsible investing is important to you, add these five ETFs to your watchlist to stay up-to-date on what they're up to.
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Fool contributor Dan Caplinger is responsible for producing profits. He doesn't own shares of the companies mentioned in this article. Johnson & Johnson and Statoil ASA are Motley Fool Income Investor picks. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson, which is also a Motley Fool Inside Value recommendation. The Fool and Motley Fool Alpha LLC own shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy is never antisocial.