What qualifies as socially responsible screening?

It is worth doing a bit of homework on what companies consider a "socially responsible" fund.

The Social Investment Forum is an excellent resource for finding SR funds, for instance, but it is important to recognize that they consider virtually any screening as qualifying a fund for listing in their database. This makes sense both from the standpoint of advancing the SRI cause ("Look how many funds are socially responsible!") and from the standpoint of where to draw the line - in other words, it is reasonable that they don't necessarily want to get into the business of deciding who is in and who is not.

But this can lead to some odd listings. Taking a look at SIF's mutual fund chart, for example, the Flex-Funds Socially Responsible Utilities Fund appears to have had some good returns in recent years. What exactly is a socially responsible utilities fund, you might ask? Well, that's where things get tricky.

A review of the Flex-Funds site indicates that the company recently changed the name of its Total Return Utilities Fund to the Socially Responsible Utilities Fund (FLRUX) simply for not investing in nuclear energy. No other screen is applied to the fund, and the company makes a point of noting that it "favors companies in utility-friendly states with fewer regulations to constrain earnings growth."

So, basically there is an incentive for SRI advocates to claim as many funds for the cause as possible, and an incentive for mutual fund companies to capture niche market investors by applying the socially responsible label. This is just one of the reasons that discernment is necessary when considering any investment.