February 2003
Socially Responsible Investing, Part II
How to Screen for Companies that Reflect Your Values
by Sheri Wallace
In the world of socially responsible investing, "screening" is the term used to denote actively choosing the companies in which we want to invest, based on their participation in the issues you care about.
One of the cornerstones of socially responsible investing, screening is probably the most common method by which social investors voice their opinions and make the big choices about where to invest their money. Although there are more complex definitions, screening is really nothing more than allowing your values to direct your choice of investments first followed, of course, by all of the usual financial ratios, hot tips, and stock charts.
Rather than looking solely at a company’s balance sheets, you also look at their ethics, and where they invest their money to see if it matches your values and your heart. For example, if a company that looked good on paper invests heavily in tobacco or pornography, and those are products you choose not to support, then they would be screened out of your portfolio.
And, despite the recent downturn on Wall Street, screening is hot, hot, hot. In fact, according to the Social Investment Forum, assets in screened portfolios have risen more than a third from 1999 to 2001. There was an estimated $19.9 trillion in screened portfolios at the time of the study, with interest in screening growing every day as more investors become sick of hearing about the latest scandal. In fact, the growth rate for screened portfolios is 1.5 times the rate of mainstream investments. If you aren’t impressed yet, consider that one out of every $8 under professional management in the United States is in some form of a screened account.
Avoidance Screening
There are two basic types of screening in socially responsible investing circles. Avoidance screening is what we used in the example above — basically, avoiding the companies that don’t match your values. If you choose to invest in a socially responsible mutual fund, you will notice that the fund will list its screens prominently for you to see before you invest. Common avoidance screens include alcohol, the environment, nuclear power, animal rights, child labor, gambling, discrimination, and executive compensation, with tobacco being the current number one screen.
When you first start learning about avoidance screens, it may seem that there are a lot of depressing issues in the world, and certainly there are. But focus on the fact that you are choosing not to invest your hard-earned money in the companies that further these types of issues, and you can feel a bit better already. Also, it is important to realize that you can’t single-handedly make the entire world stand up and listen. But by joining forces with other like-minded investors, it is possible to make even huge, multi-national corporations listen and change their policies. This is anything but depressing. Socially responsible investing is not about being a helpless bystander, but about making choices in your own life about the issues you care about. You are free to pick and choose the issues that you want to exclude from your portfolio, your shopping lists, and your major purchases.
Affirmative Screening
Operating in much the same way as avoidance screening — but in reverse — is affirmative screening. You will practice affirmative screening when you search out innovative companies that share your values on key issues and choose to invest in these companies because of their alignment with your core values. If you have children, you might decide to start by researching the lists of best companies for working parents. If you believe in environmental issues, you could start with companies that have published strong environmental policies. Actively seeking out companies that match your values and investing in businesses that meet your goals and ideals is at the heart of affirmative screening.
Affirmative screening is guaranteed to get your blood pumping. When you start actively searching for a responsible alternative to a product that you use everyday, or come across a company that is making revolutionary progress because its founders refuse to compromise, you will also realize that far from being alone in trying to make the planet a healthier place to live, you are in fact joined by persons from all around the world. Of course, not every company starting to sell an ecologically friendly product is going to be a good investment for you or your family, so you must still use other evaluation criteria.
Where to Find More Information
This all sounds simple on paper, but when you start screening your first portfolio, you’ll realize that things get complicated quickly. You might wish to invest in a company that does a little of this and a little of that — some right in line with your values, and some not so close at all. While this does make life more complex, and you’ll have to do more digging and more soul searching, you can still use the principles of screening to help decide whether to invest or pass. There is also a wealth of information available online for you to take advantage of. From detailed screening information on specific companies to help navigating the socially responsible investing waters. Here are some Web sites to explore:
One of the best screening tools ever, the Calvert "Know What You Own" service allows you to check companies for specific issues. You can also find up to date information on the latest issues, and learn about other hot topics in socially responsible investing.
Along with lots of other great information, including a very detailed shareholder activism center, the Domini site has good information on many of the most popular screens. While you’re visiting the site, you can also find out how to be a more active investor.
Home of the very first socially screened mutual fund, Pax World Funds gives beginning screeners some step-by-step details on how they screen their funds. Their philosophy and history sections on the Web site are just plain interesting reading, and there are a lot of valuable resources within easy reach here as well.
You can order a free mutual funds kit, learn about everything and anything that is happening in the SRI community, and do as much research as you have time for. This family of sites just continues to get better and better, so bookmark and enjoy!
There are untold goodies waiting to be discovered on this site — just start clicking and reading. This is a great place to find more resources if you want to research a particular issue, such as firearms, tobacco, etc.
Sheri Wallace is a freelance writer from Tucson, AZ, who writes frequently on social investing issues.
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