Socially responsible investing was once taken about as seriously as tree hugging. I remember one conversation I had with my financial adviser 15 years ago: When I inquired about do-gooder funds, he wrote them off as bad investments, likely to offer only small returns. In fact, he was so dismissive of such bets--also known as green, sustainable, or impact investing--I never followed up.

It's well past time to take another look. Social investment is growing quickly, buoyed by greater popular consciousness about how our money can affect the world. In 2014, one dollar of every six of U.S. assets under professional management was invested in some form of sustainable fund, up from one of every nine just two years earlier, according to a 2015 report from Morgan Stanley's Institute for Sustainable Investing. And, despite my then adviser's reaction, social investing has "usually met, and often exceeded, the performance of comparable traditional investments," the report states.

$6.6 trillionThe amount of U.S. wealth invested sustainably as of 2014. This amounts to nearly 18 percent of total U.S. assets under management, according to the US SIF Forum for Sustainable and Responsible Investment.
Guns and smokesSocial-impact investors can be better known for what they shun than for what they buy. Shares of firearm manufacturers, tobacco companies, and oil producers are some of the most commonly avoided; others include those of alcohol companies, gambling operators, and nuclear and conventional weapons makers. "The more successful such companies are, the greater the cost they impose on society," according to Domini Social Investments.

So there are more sustainable funds and they perform well overall. But what does it actually mean to be socially conscious with your money? Impact investors usually consider three major criteria when deciding whether to include a company's shares in their funds: the company's environmental impact on everything from land use to ozone depletion; its treatment of its people, including workers and customers; and its corporate governance, including executive compensation and how diverse its management is. That leaves room for a lot of contradictions, as many for-profit businesses can draw praise in one area and criticism in another. A company with progressive environmental practices might underpay workers, or one with a diverse board might do business in a much-maligned industry, such as fracking.

"It's a judgment call," says Amy Domini, whose Domini Social Investments manages $1.6 billion in assets. "We balance a great many issues."

For example, Apple remains in Domini's funds despite its mostly white, mostly male board, in part because Apple has in recent years appointed a second woman director, Sue Wagner, and its only current black director, James Bell. (Still, the company this year opposed a share­holder proposal to increase senior governance diversity.) Meanwhile, McDonald's was once in Domini's port­folio, in part because it had stopped using beef from cattle that graze where rainforests have been clear-cut, but she recently dropped the company over its failure to pay a living wage. (Once Domini selects the stocks it's willing to include in its funds, it gives that list to a more traditionally minded submanager, which adds or drops companies on the basis of their shares' anticipated financial performance.)

Some big names have joined asset managers like Domini, Pax, and the Calvert Foundation, which have touted socially responsible funds for a long time. In October, BlackRock launched an Impact U.S. Equity Fund, which measures social and environmental outcomes coupled with returns.

Be aware that some socially responsible funds charge higher fees than many traditional funds. And there's the question of whether any individual's targeted investing really makes a difference, by pressuring companies to improve labor, management, or environmental practices. David J. Vogel, a professor emeritus in business ethics at the University of California, Berkeley's Haas School of Business, is skeptical: "The number of social investors is too small to affect share prices," he says.

But there's still a case for impact investing--not least because it forces us to think about where our money is going and whether we can have a more active say in how it is used. And sometimes it does make a concrete difference. For example, I'm personally concerned about the resources available to older, low-income Americans, so I've been looking at bonds offered by the AARP Foundation, along with Capital Impact Partners and the Calvert Foundation. Such investments help finance projects like a nonprofit food company that provides healthy meals to seniors.

Yes, it takes some research. Many smart investments do. As Lisa Woll, CEO of the US SIF Forum for Sustainable and Responsible Investment, says, "You need to do due diligence, just like an investor who is interested in anything."

From the June 2016 issue of Inc. magazine