By by Jan Bryan
Consumers daily exercise economic clout with regard to what they want to support with their purchasing decisons, and it is equally important to extend this buying awareness to investment strategy. The last article on Socially Responsible Investing (SRI) discussed the three pillars of SRI: screening, shareholder advocacy and community investing. This article will focus on social screening, the process by which both positive and negative screens are utilized in evaluating companies in the areas of environment, social and corporate governance (‘ESG’).
It is a common mistake to assume that SRI screening only involves negative screens. In reality, SRI screens are being used more frequently to invest in companies that are leaders in adopting clean technologies and exceptional social and governance practices. “E”: An example of a positive environmental screen would be one that considers whether or not a company measures and discloses their greenhouse gas emissions and climate change strategies via the Carbon Disclosure Project’s (CDP) information request. It is prudent to invest in companies that have assessed their carbon footprint. A negative screen would avoid companies that have a history of environmental non-compliance and non-disclosure about their environmental risks. Be aware, they could be passing these risks on to you, the investor. “S”: Screening for social commitment by companies as measured by their community investing is another example of a positive screen. A 2008 study by the Boston College Center for Corporate Citizenship found significant correlation between companies with strong financial performance and those with charitable programs such as: neighborhood development projects, microlending, “green collar” jobs and other community development initiatives. Negative screening would avoid investing in companies linked to human rights atrocities like PetroChina, the worst of the four major oil companies funding the genocide in Darfur, Sudan. With the help of these companies the government of Sudan is using its oil revenue to provide arms and funding to promote genocide, rather than economic development for the people of Sudan. “G”: In light of the meltdown on Wall Street, more investors are taking a closer look at governance issues. Investors are seeking companies with independent boards of directors that are not stacked with cronies of the CEO. There is great concern and a negative view of excessive executive compensation packages that have little basis in reality and are not tied to long term performance. Recent data confirms excessive pay structures hurt stockholders.
Each SRI mutual fund may emphasize different screening criteria, but with 150 SRI mutual funds now available, building a diversified portfolio that matches your values, your risk level and timeline is possible. Custom screening is also available through private portfolio managers. For more information visit www.socialinvest.org or www.socialfunds.com.
Jan Bryan CFP® AIF® is an Investment Advisory Representative of First Affirmative Financial Network, LLC. She is an independent Registered Investment Advisor (SEC # 801-56587) and can be reached at jbryan@janbryansri.com. •
Barry Sautman, an associate professor of social science at the Hong Kong University of Science and Technology, said China did not deserve to be singled out for investments made with controversial regimes.
In Sudan, "China is certainly not alone in developing the oil industry", Sautman said, noting that it was linked to projects in which India's ONGC and Malaysia's Petronas, both state-owned firms, held major stakes.
Both firms, in addition to China's PetroChina and Sinopec, have been accused by US non-profit organisation Investors Against Genocide of "helping to fund the genocide in Darfur" in western Sudan.