Socially Conscious Screening

Socially responsible investing considers both financial return and social good. Many investors object to various businesses activities, and there are money managers and funds that let them invest according to their consciences. But just how do they go about screening out objectionable things?

This investing strategy has early roots in this country and dates back to 1758, when the Quakers refused to invest in any aspect of the slave trade. And while many groups followed SRI through the years, funds that employ a socially responsible screen are only a recent development.

Regular mutual funds evaluate securities by risk and expected return. They sometimes take corporate governance into account, as well. In general, socially responsible investors look at other values, as well, to encourage corporate practices that promote religious beliefs, environmental stewardship, consumer protection, human rights and diversity. Some screen out businesses involved in alcohol, tobacco, gambling, abortion, pornography, weapons or the military.

For example, DFA International Social Core Equity Portfolio (DSCLX) disqualifies companies that that engage in for-profit business in the Republic of Sudan, child labor infractions in the U.S. or abroad, making anti-personnel or anti-vehicle landmines, stem cell research or providing abortion or contraceptives.

This particular firm also screens out companies that are partly engaged in controversial practices, such as those that earn a substantial fraction of revenue from military weapons or weapons of mass destruction, tobacco, alcohol, gambling or adult entertainment.

This means that the fund does not invest in Toyota (TM) because it conducts business in Sudan. It steers clear of the true alcohol companies like Diageo (DEO), but hotels that serve alcohol to its guests are eligible as long as alcohol sales don’t account for more than a fifth of revenue.

It’s very important to have broad diversification with any investment portfolio. We recommend mutual funds that cater to social responsible principles, such as environmentally sustainable development precisely for this reason. Many investors consider global climate change a significant business and investment risk. Investing part of your portfolio in environmentally conscious companies is now possible as well.

On the other hand, screening out companies for practices that you disagree with does occasionally result in diminished profits. The DFA fund mentioned here explicitly warns investors that its environmental and social goals might result in leaving money on the table.

Socially responsible investing is a booming market in both the U.S. and Europe. Assets in socially screened portfolios climbed to $3.74 trillion at the start of 2012, a 22% increase since 2009, according to the Forum for Sustainable and Responsible Investment’s 2012 Report on Social Responsible Investing Trends in the United States.

Investing according to your conscience can make your retirement portfolio into a powerful agent for positive change. In the 1980s, shareholder uproar prompted U.S. companies to pull out of apartheid-ruled South Africa. An international boycott helped bring about fair elections there and an end to the racist system. If you are interested socially responsible investing, ask your financial advisor to help you look for a fund that matches your values.

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The foregoing content reflects the opinions of Crimmins Wealth Management and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.

About Maureen Crimmins

Maureen Crimmins is co-founder of Crimmins Wealth Management and a fee-only independent financial advisor. Have a financial question? ASK MAUREEN


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