Sustainable investing: the term 'sustainability is widely used to describe a way of prolonging human economic activities with fewer impacts on ecological systems--in particular, those resulting in climate change, oil depletion or poverty.

One of most common definitions of sustainability is the one given by the former Norwegian Prime Minister Gro Harlem Brundtland, who saidsustainable development "meets the needs of the present without compromising the ability of future generations to meet their own needs".

In this article we take a look at Socially Responsible Investing (SRI), which is popular in both the United States and Europe--particularly in pension funds.

In fact, in Germany and the United Kingdom, pension-fund managers are required by law to disclose the degree to which criteria of this kind are taken into consideration when they make an investment.

Most of us have our opinion on what is socially responsible and what is not, so investing with your values means more than just buying into a fund labelled 'SRI'. Investors must understand the criteria by which socially responsible mutual funds select their portfolio holdings.

There are no universal standards for the industry so, for example, a fund that excludes only tobacco, or that has a specific religious focus, is grouped in the Socially Responsible Investment (SRI) category with dozens of other funds that apply a broader range of ethical criteria.

Fund companies may address corporate practices and international issues, and may screen out investments based on environmental, social or ethical impacts of business activities (eg, child labour). Other investments may be given priority due to their basis in sustainable activities (eg, water treatment), or based on the activism of their shareholders, on the assumption that these investments will profit as the transition to more sustainable development continues.

There are literally hundreds of potential criteria, but I have chosen to cover four mutual funds that I think will satisfy most people's definition of Socially Responsible Investing:

Pictet-Ethos (CH) Swiss Sustainable Equities Investment Fund (ISIN 0H0008897636)

The portfolio, now worth SFr 2.7 million, is managed by Pictet Asset Management and aimed at capital growth, investing in the 'sustainability leaders' among Swiss companies. On December 17, 2007 this fund had a return of over 2.74% year-to-date. Top stocks were Nestle at 17.7%, Novartis at 12.4% and Roche Holdings at 11.7%, while the main sectors were health care at 31.5%, financials at 25.6% and consumables at 19.4%.

Credit Suisse EF (LUX) Future Energy R CHF (ISIN LU0268331831)

Managed by Credit Suisse Asset Management this is also aimed at capital growth, and is based on global companies in future-oriented activities related to energy. On December 17, 2007 the fund--worth SFr 57 million--had returned over 22% year-to-date and the three largest stock positions were Vestas Wind System at 4.5%, Q-Cells at 3.13% and Solar World at 3.33%. Top sectors were water supply at 31.32% and petroleum at 17.65%.

Sarasin New Power Fund--F (ISlN LU0299602168)

Managed by Bank Sarasin & Co. Ltd and aimed at long-term capital growth, the fund invests mainly in companies with a long term and innovative approach to the use of energy--considering environmental and social concerns. Special attention is paid to companies active in renewable energies such as wind (11% of the portfolio), water (hydro is 9%) and solar energy (25.36%), as well as biofuels and geothermal power.

Investment is targeted at consulting, financing, suppliers, power generation and energy trading, as well as the leading customers and users. Now worth SFr 68 million, the fund was launched in May 2007 and the return was 8.22% as of November. The largest stock positions were Q Cells at 3.86%, Gamesa Technologica at 5.78% and BG Group at 5.62[degrees]/o.

UBS (Lux) Responsibility Fund--European Equities B (ISIN LU0219906632)

A portfolio of between 30 and 60 stocks is managed by the UBS Global Asset Management and invests mainly in leaders but also (around 20[degrees]/0) in innovators, which tend to be small- to mid-sized companies. Companies are screened on social and environmental criteria and then measured conventionally. On December 17, 2007 the fund was worth 18 million euros and had a return of 4.1% year-to-date. Top stock positions were Vodafone at 4.64% , BP at 3.88% and GlaxoSmithKline at 3.39%, and the main sectors were bank and credit institutions at 17%, telecommunication at 13.18% and energy & water supply at 10.01%.

In summary, the unfolding universe of SRI funds is still relatively limited and, because of their tight screening, these investments have so far underperformed their non-ethical counterparts.

While it is hard to make a blanket statement about a wide range of funds, you may wish to consult a respected new index of ethical share performance, the FTSE4Good. Surprisingly, recent evidence confirms that socially responsible firms included in the FTSE4Good index actually deliver better returns than conventional indices such as the FTSE All-Share and the FTSE World 100. That is true of three- and five-year results.

As with any responsible investing, you need to do research before jumping in. Still, it's never been easier to align your investments to your ideals. Today you can find an SRI that will make you money while supporting your values. I think most of us would agree that we owe it to our children, our planet and ourselves.

United Nations: www.un.org/esa/progareas/sustdev.html

FTSE4Good: www.ftse.com/About_Us/index.jsp

Brien Donnellon is the owner of KEY INVESTMENT, a financial services company providing unbiased financial advice and solutions for Swiss-based expats, HR departments and foreign investors.

The company, formed in 1997, is authorised and regulated by the Swiss Federal Banking Commission.

For further information please visit www.keyinvestment.ch or write to [e-mail] or call 081 257 13 14