WEST PALM BEACH – Despite the gloomy forecast that mutual funds have weathered over the past year, there are a plethora of investors who value morals and conscience just as much as returns. Enter socially responsible investing (SRI) which seeks out mutual funds and stocks that are tied to companies that are pro-environment, pro-family values and anti-societal ills. These funds generally shy away from companies in the tobacco, alcohol, or gambling industries, but the spectrum can also include firms that support military efforts or violence. The term is sometimes applied to banks and credit unions based on their lending practices. Industry watchers say SRI is on the upswing and credit unions may be the next group to woo. Community development credit unions have probably come the closest to aligning with SRI, diligently seeking out companies that are willing to and have a record of reinvestment in neighborhoods. Members at Vermont Development Credit Union in Burlington invest $6 million in money market accounts, individual retirement accounts and certificates of deposits with a heavy emphasis on investment in socially responsible firms that recycle capital back into the communities it serves, said Caryl Stewart, president. "It's so important for our members to be able to see their money go to work by helping others attain home ownership, better jobs, going back to school and building small businesses," Stewart said. While credit unions have made small ripples in the SRI, their impact potential has yet to be consistently tapped, said Stephen Ally, national director of marketing of the Timothy Plan, in Winter Park, Fla., which offers funds with religious-based principles in mind. The fund firm has $80 million of assets under management in eight funds, which are available through 250 broker-dealers. "I think we've turned a corner and investors are liking what they see," Ally said. "Today, a prudent investor doesn't have to give up their beliefs in order to see returns." Socially responsible funds also steer clear of industries that have environmental problems. At the same time they look for companies with good community relations or that promote workplace diversity. Because of those stringent criteria, these funds often are well stocked with the same technology, healthcare, software or Internet shares that have blazed a trail through the market over previous years. Through their financial activism, social investors have also helped bring environmental issues to many boardrooms for the first time. Today, environmental performance, racial diversity, and gender equality are mainstays of company reports. Indeed, some of the biggest blue chips have created entire departments to oversee these areas, Ally said. 1Point Administrative Services, a benefits administration firm based in Nashville, recently introduced its SR401K Plan, a 401(k) plan comprised on 17 socially responsible mutual funds. "Credit unions pride themselves on high touch," said Barry Stokes, president of 1Point. "Members have unique needs that Wall Street banking firms traditionally didn't want to fulfill because they just didn't see a profit there. SRI is a way of investing that goes beyond return." Meanwhile, Canada is seeing a surge in "conscious investing," with a number of credit unions signing on to Ethical Funds Inc., distributed through Credential Asset Management Inc., the largest manager of SRI funds here with $2.3 billion in assets under management and 12 funds. Vancouver City Savings Credit Union (VanCity) Canada's largest credit union, responded to members requests who wanted more control over the type of companies their investment dollars were tied to, said Dave Mowat, CEO. VanCity has $7.0 billion in assets, 269,000 members and 39 branches. "Our members have told us they want us to be more than a financial institution," Mowat said. "Many of them don't want to leave their investment choices to someone else, they value the screening process we offer through Ethical Funds." Since it can be hard work to screen each individual stock, many investors have turned to mutual funds with specific religious or secular screening criteria. "Every dollar that goes into a social fund is making a very powerful statement," said David Berge, president of the Social Investment Forum. "I have had CEOs of Fortune 500 companies tell me that, yes, they get pressure from all kinds of sources, but when the investors get involved they know the issue is not going to go away." Berge offers some basics on what investors need to know before they make the social or moral investment move: * Screening: This is what most people think about when they think of social investing, which is screening stocks in or out of the portfolio based on the social and environmental performance of a company. * Shareholder activism: When a person or an institution or a company owns at least a thousand dollars of stock for at least a year they have the right to engage in the formal process of asking management for more information or to consider a change in their policies and practices. * Community investing: In community investing you're looking at investing directly into the front lines of projects, such as creating affordable housing, small businesses, and jobs. Those may be businesses or nonprofit organizations or institutions that are not publicly traded. * Social venture capital: The strategy of investing in cutting edge companies that may be the innovators in addressing social and environmental problems, but whose stocks may not trade on the public exchange. One recent sign of SRI's maturity and mainstream status has been the entry of TIAA-CREF, the world's largest pension system, and Vanguard, the second-largest U.S. company of mutual funds, into the world of socially-screened funds. "When the big players affect the investment market, others almost always follow suit and in this case, that's a good thing," Berge said. – [email protected]