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I've found some "socially responsible" funds that I'm interested in investing in. I have no idea how to tell if they're a scam though. Is there an accreditation agency or something similar which can verify both their ethical commitments and their financial ones?

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    Good question, but I'm doubtful given that "socially responsible" seems like a pretty subjective notion.
    – JohnFx
    Feb 22 '12 at 13:11
  • @JohnFx: All the accreditor would have to do is verify that the org lives up to its own claims. It would be up to me to decide if those claims all "socially responsible".
    – Xodarap
    Feb 22 '12 at 13:25
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    True, but business people are really good at making claims that are ambiguous enough that they aren't all that measurable on an objective way. Typically any claims like that are going to come from a PR or marketing wing of the company. The types who are great at spin.
    – JohnFx
    Feb 22 '12 at 16:01
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    I have created an ethical-investing tag (because socially-responsible-investing is too long).
    – user296
    Feb 22 '12 at 22:30
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    Regardless of whether or not "oil companies are socially responsible" it is an obvious fact that there are people who think they are not, and who seek investment products which will not invest in them, or similar ventures. Certainly those people ought to be free to seek such investment products and determine to what extent they comply with their personal notions of 'social responsibility'. And dissuading them if they are wrong, or challenging their notions, is certainly not the purpose of this site :)
    – user296
    Feb 26 '12 at 17:25
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These are not exactly accreditation agencies of the type you're describing, but two sites with useful tools for researching socially responsible funds are SocialFunds and US SIF.

Social Funds I find a bit difficult to navigate, but you can sort their list by social issues to see what kind of screening the fund uses (positive, restricted, exclusion, none). Their fund detail page is basically an excerpt from the prospectus - here is their page on the Parnassus Fund, for example.

US SIF has a similar option to view (but not sort) funds by social issue and type of screening. Their fund detail page includes a methodology section which explains how the fund evaluates its profile choices. As an example, here you can see that the Pax World International fund applies financial criteria before social screening, and uses both internal and third party research for screening purposes. As far as I can tell, this is taken almost verbatim from the fund prospectus, but it's nice to have it separated out and easily accessible.

Both of these aggregators link to the fund operators' sites, where you can usually find the prospectus and quarterly holdings. (Note that SocialFunds is identifying itself as the refer-er in those links.) If your question is simply, "do they really not invest in oil companies?", then the list of holdings will definitely answer it. Otherwise, for funds that use third party screeners, you can get more detailed information about ESG practices of individual companies straight from the screeners, though it probably won't be free.

I second mbhunter's recommendation to read the fund prospectus and examine its holdings. For me, the prospectus and holdings, a listing on US SIF, and buying from a reputable firm have been enough to answer any doubts. I don't have time to do exhaustive personal research - that's what the third-party screeners are for - so I trust the claims in the prospectus, which, as mbhunter said, IS a regulated legal document.

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The fund's rules should be spelled out, just like for any other fund. I'd read the prospectus of each fund that interests you. These are legal documents required by the SEC that, among other things, define what the fund can hold and what kinds of activities or industries the fund will (or will not) engage in, and how. There are penalties if the mutual fund doesn't follow its own rules.

Basically, the fund is as ethical as it says it is, and part of the auditing process is evaluating how well it follows its own ethics.

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  • Is it like banks where I have to see if it's FDIC insured or by merely describing themselves as a fund are they bound by these SEC requirements?
    – Xodarap
    Feb 27 '12 at 1:59
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    @Xodarap Unless what you're looking at is some kind of 'investment club', then yes, all mutual funds are SEC-regulated.
    – Kimberly
    Mar 4 '12 at 3:02
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It depends on where you found them. The two ultimate sources are Morningstar and ETFdb.com for screening funds.

The following funds listed are not scam: http://etfdb.com/type/investment-style/socially-responsible/

ETFdb explains:

Socially Responsible ETFs invest in companies that have a track record for being socially responsible. Typical companies targeted within these funds are alternative energy firms and organic food makers.

I believe it is more questionable if the "organic food farm" is really organic rather than the ETF is following all regulatory rules thus cant be labbeled as scam.

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