Socially responsible investing is gaining major traction, thanks in part to the emergence in the U.S. of “impact investing,” a concept that started in the U.K.

“It has been a more galvanizing force for more sophisticated institutional investors - like the state of California’s CalPERS that makes purchases of certain investments for a greener state,” says Amy Domini, founder of the Domini Funds and one of the nation’s chief architects of SRI.

In 1986, pension funds globally moved to oppose apartheid in South Africa by divesting of some $200 billion in companies that supported it. And more recently, impact investing has caught on with traditional wealth management firms. Large banks, fund companies, and boutique investment firms catering to people with a high net worth are all getting into the game with teams dedicated to addressing the environment, women’s rights, the environment and more.

According to the Financial Times, the difference between the two is that “socially responsible investing is about avoiding investments that are inconsistent with the values of the investors,” while “impact investments actively pursue a positive impact.”

The enthusiasm for impact investing in the U.S. hasn't only led to more financial institutions producing investment products with a social tilt, but to a new focus on academics with seminars, professors and even programs churning out graduates who hope to pin their careers on the movement.

Why performance has improved

The question of whether an investor will sacrifice returns by doing good “is a question that will always be asked, “ says Domini, even though times have changed. When she started the Domini 400 in 1989 to track socially responsible companies, performance lagged behind the S&P SPX, -1.11% . But since 1990, the social index (MSCI KLD 400) returned an average annual total return of 10.46% compared with the S&P 500’s 9.93%.

“When you do the kind of in-depth research that we do, you learn about a company, its management,” says Domini. “And, you end up with a golden fleece for investment advisers.”

How so and how can investors take note?

Consider how the following scenarios could hurt a company’s stock performance. A company has six product safety recalls in just a couple of years. A company suffers a controversy that can result in substantial legal and reputational costs. Or an international company that does business through bribery. If an impact investing fund is doing its job well, it won’t hold shares of companies in such situations.

“When it comes to picking stocks, these to me are relevant issues and pretty cut and dry,” she says. “Do you really want to be investing in these things?”

While strategies may vary, Domini’s involves avoiding certain companies altogether, such as those involved in alcohol, tobacco, gambling, and weapons. The firm also conducts bottoms-up research. Take Colgate-Palmolive CL, -1.14% and Church & Dwight CHD, -1.89% : the two appear quite similar, in that they both make cleaning agents. However one analyst scored Church and Dwight lower than Colgate in his “level 1” (or what does the company make) research. Upon closer review, Domini says the firm should score higher because it makes products out of baking soda, which are environmentally better than phosphates.

New measures bolster the move

Adding momentum to affect investing is the creation of the Sustainable Accounting Standards Board (SASB), which is starting to create key performance metrics, and features top leaders from Michael Bloomberg to former SEC Chair Mary Schapiro.

“The mandate for greater disclosure has been cropping up,” Domini points out. “Creating standards and metrics that could grow into global standards just as we’ve seen in other areas like accounting, that can really change the game.”

Finally, the next generation. College students I spoke to were eager to get in the game. “I want to have a career in impact investing,” one young woman told me.

Who knows? Maybe she’ll follow in Domini’s footsteps.