What are ESG and SRI funds, and do they perform worse?

ESG (environmental, social, governance) and SRI (socially responsible investing) funds screen companies by values-based criteria — excluding tobacco or fossil fuels, or favoring firms with strong governance and environmental records. They let you align investments with your principles. On performance, the evidence is mixed: ESG funds haven't reliably beaten or trailed the broad market over long periods, but they often charge higher expense ratios and can be less diversified because of their exclusions, which adds tracking risk. Definitions also vary widely between providers, so two ESG funds can hold very different companies — read the prospectus to see what's actually screened. If values alignment matters to you, ESG investing is reasonable; just keep costs low and treat it as your core allocation only if it's broadly diversified. Compare expense ratios before choosing at wealthserene.com/tools/portfolio-builder.