Save the Earth Sacrifice Your Returns?

For individual investors, there are 131 mutual funds with a social focus, a 134 percent increase from 1996, according to Morningstar. Assets in socially responsible funds top $47.4 billion, a sevenfold increase in the past decade. In the same period, the number of all mutual funds grew by 39 percent while assets nearly tripled.

The classic socially responsible fund avoids stocks in companies engaged in tobacco, alcohol, gambling and weapons production. But there are funds for just about any set of values.

The five Ave Maria Mutual Funds, for instance, follow Catholic teachings, avoiding stocks in companies involved in abortion and pornography or that provide benefits to employees' unmarried partners. The Blue Large Cap Fund favors stocks in companies that give money to Democratic candidates.

Typically, a social fund's manager starts the same way all fund managers do, compiling a list of stocks that fit the fund's investing style -- large-cap growth or small-cap value, for instance. Stocks thought to offer good returns are evaluated according to the fund's social criteria. The manager, for example, may bar shares of any company receiving more than 10 percent of its revenue from tobacco products or seek shares of companies developing clean energy.

The manager's staff can glean this information from corporate filings or rely on data produced by consultants specializing in this kind of research. Some funds, for example, ban stocks in companies doing business in Sudan by using a list maintained by the nonprofit Sudan Divestment Task Force.

Some socially responsible funds are offered by big fund companies such as Vanguard and Fidelity that are better known for their traditional funds. Others come from firms that specialize in social investing, such as Bethesda's Calvert Group, which offers about 15 such funds. A few funds bear a sponsor's endorsement, such as the two Sierra Club mutual funds.

Socially focused funds show up in some 401(k)s and similar workplace retirement plans, but many employers have skipped this option, reluctant to take sides on controversial issues.

Despite its growth, social investing has plenty of critics who argue that selecting stocks by using non-financial criteria undermines returns. And they say there is scant evidence that social investing achieves anything.

"It's like astrology for investors," said Jon Entine, an adjunct fellow at the American Enterprise Institute who has written extensively about socially responsible investing. "It's done by people who are not that sophisticated, by people who have an anti-market bias."

Research shows that socially responsible investors do pay a price, according to Christopher C. Geczy, finance professor at the University of Pennsylvania's Wharton School.

"When you restrict the universe to only those investments that are socially responsible, you are eliminating many, many mutual funds and investment styles that should be in the optimal portfolio," he said, noting there are more than 9,000 U.S. stock funds.

In the recently updated 2003 paper "Investing in Socially Responsible Mutual Funds," Geczy and his colleagues found that investors using actively managed social investing funds achieved annual returns averaging about 3.5 percentage points less than they could have earned with comparable traditional funds. That could significantly reduce one's nest egg in retirement, he said.