Assets continue to balloon, even as the debate about performance continues to bubble.

Socially responsible investing can mean different things to different people, having grown over the past few decades into an investment philosophy that can encompass religion, politics and environmental concerns.
Yet one thing about SRI does seem clear: There is a thriving demand for it among individual investors.
Nearly 10% of all professionally managed investments are SRI funds, according to a 2005 report by the Social Investment Forum. The same report found that SRI investment assets grew 260% between 1995 and 2005, from $639 million to $2.29 trillion, and that mainstream money managers have been increasingly incorporating social and environmental screening into their holding selection process.
The extent to which SRI investing has grown since 2005 will be addressed by the Social Investment Forum at the end of this year, when it conducts its biennial SRI trend report. Anecdotally, however, advisors and managers say they continue to see a growing interest among investors in making their social, political and religious beliefs a part of their overall investment strategy.
Observers say the number of socially responsible investors continues to grow, particularly those interested in investment products tied to issues dealing with the environment and global warming and religion-based SRI funds. More SRI funds are also appearing in the form of ETFs, and it is becoming more common to find SRI funds among the selections available to workers in their employee-sponsored defined contribution plans.
Looked at in another way, socially responsible investing is another byproduct of investments moving from the professional realm into mainstream America as a result of the shift to defined contribution plans. Advisors say that socially responsible investing is  an effort by their clients to personalize an investment process that has traditionally been grounded in logic and quantitative analysis.
"As baby boomers are aging, they are coming back to their roots a little bit and there is, after making money, the thought of, now what do we do and what kind of footprint are we leaving," says Lisa Kirchenbauer, president of Kirchenbauer Financial Management and Consulting in Arlington, Va. Kirchenbauer, who has been helping clients select SRI funds for years, said another reason investors are more apt to put money into an SRI investment is that these products now encompass a broader range of interests. "I think these days many people realize that SRI just isn't alcohol, weapons and nuclear energy," she says.
Just as advisors have expanded the scope of their profession beyond investment management to helping clients achieve their life goals and aspirations, more investors are making an effort to ensure that their investments are in tune with their deeply held beliefs, even if it costs them some performance, advisors say.
David Freeman-Woolpert, who holds about half of his clients' $40 million in assets in SRI-related investments, says he tries to size up a client's stand on SRI investing early on. "I raise the question with every client," he says.
Some maintain a wall between their beliefs and their investments and ask for the best fund available, he says. Some will compromise between their beliefs and the way they take action on those beliefs, often by putting assets into an SRI product only if its performance records will help them achieve their goals.
Most often, however, clients will make SRI a priority-which may be related to the fact that, with his business in the state capital of New Hampshire, he has a large percentage of civil service workers as clients. "I get a lot of people who are doing the work they do because of the impact they can make. To put money into something that goes against the grain just seems to be against what they stand for in their professions," says Freeman-Woolpert, an LPL-affiliated advisor who is the owner of Altus Investment Group in Concord, N.H.

Multiple Meanings
In today's investment market, calling something "SRI" isn't enough, says David Kathman, mutual fund analyst with Morningstar Inc. "It all depends on how you define SRI," he says. Perhaps the most distinct groupings within the SRI category are the religious and the nonreligious funds, he says. Religious funds have been a fast-growing sector, going from under $500 million to more than $17 billion in assets in ten years, Kathman says. Catholic, Protestant and Islamic funds make up the three main divisions in this category. The largest funds within the religious category are the Ave Maria Catholic Values Fund, the Presbyterian-based New Covenant funds, the Southern Baptist Convention Guidestone Funds and the Islamic Amana Trust growth and income funds, according to Kathman. (See related story on page 105.)
In recent years, one of the busiest SRI sectors has been the environmental area, particularly funds that tie into the global warming issue by investing in clean alternative energy companies. Although this is not an entirely new area of SRI activity-given that the New Alternatives Fund has been investing in renewable energy since 1982-it is an area that has benefited from the rising prominence of the global warming debate, observers say.
Kirchenbauer says this may be because concern about the environment cuts across all areas of socially responsible investing, regardless of where people stand politically or religiously. "The place where there is an intersection is the environment," she says.
Recent environmental SRI fund launches include the Guinness Atkinson Alternative Energy Fund and the Global Warming Prevention Equity Fund. The WilderShares Progressive Energy Portfolio and the PowerShares Cleantech Portfolio, both index-based, are ETFs recently launched by PowerShares. Before those, PowerShares launched the WilderHill Clean Energy Portfolio in March 2005, which has since grown to about $950 million in assets, and launched the Water Resources Portfolio in December 2005, which has more than $1 billion in assets.
PowerShares CEO Bruce Bond says the company has also submitted filings to the SEC for the launch of Global Water and Global Clean Energy ETFs. Bond says he feels that specialized SRI funds, such as the four ETFs launched by PowerShares, are more easily understandable to the investment community. "When you call yourself an SRI fund and that's all you do, it's difficult for a person to understand what that really means," he says. "We want something that is very clear to people so they clearly understand what it is they are investing in."
In another indication of the attention environmental and energy issues are getting, Calvert Investments has filed papers with the SEC to start its own alternative energy fund this year. The fund, called Calvert Global Alternative Energy Fund, will seek to invest in companies that "demonstrate leadership in providing solutions to the climate change crisis through renewable energy and other alternative environmental technologies," according to the filing.
Calvert officials would not comment on the new fund filing, but they noted that the company has been active on the environment and is a participant in the Carbon Disclosure Project, a global effort to compel the world's largest companies to disclose their greenhouse gas emission levels.
"If there's any trend in socially responsible investing, it's the ever-sharpening focus over the last couple of years on climate change as something that we concentrate on, not only in our research, but also in our policy and advocacy work," says Bennett Freeman, Calvert's senior vice president for social research and policy.

SRI Performance
One of the common knocks against SRI funds is that investors can expect to take a performance hit. The lower performance, the critics say, is a penalty investors should expect to pay for following their emotions, rather than pure asset allocation, for selecting investments.
There is, however, much debate over this point. Kathman of Morningstar, for example, argues that studies into the performance of SRI funds are inconclusive, and that the question of whether they are, on average, underperformers is debatable. Some advisors argue that the performances of SRI funds should be considered just like those of any other portfolios-that the analysis depends on the fund, its investment style and the market conditions being looked at. Freeman-Woolpert of Altus Investment Group says, for example, that while the Calvert Social Investment Equity Fund-the company's flagship SRI fund-has underperformed the market over the past ten years, the Calvert Large Cap Growth Fund has outperformed the S&P 500 over the same period. Calvert's international and long-term bond funds have also outperformed their peer groups, he adds. "I don't invest in the average SRI fund, so I don't worry about average performance," he says.
But SRI funds do have shared characteristics that can lead to down times. The typical SRI screen, for example, will usually kick out oil and gas companies, leaving a fund underrepresented in energy. With the energy sector being a top performer during the past several years, this exclusion has hurt the bottom-line performance of many SRI funds. It was enough of a blow that the iconic Domini Social Equity Fund last year shifted from a passive index to an active management style of investing to avoid a similar fate in the future.
Janet Hoffman, who covers socially responsible investing for the investment committee of Bingham, Osborn & Scarborough wealth managers in San Francisco, says that for a firm like hers, which is focused on indexing and value, SRI funds can be a bad mix. This is partly due to the "growth" nature of SRI funds, which have a tendency to be overweight in technology, but also because of high turnover, loads and relatively high expense ratios. As a result, the firm has limited its use of SRI to six funds. The list includes the Domini Social Equity Fund, the Pimco Total Return III Institutional Fund, the Pimco Low Duration III Institutional Fund and the Vanguard FTSE Social Index Fund, Hoffman says. The list also includes two ETFs, the iShares KLD Select Social Index and the iShares KLD 400 Social Index.