Screens work to sift out stocks or mutual funds that do not measure up to certain investing criteria, thus making it easier to find those preferred investments. In SRI, investors design that criteria based upon the values they bring to their investing. Once a short list of companies that meet those SRI standards has been determined, investors can turn to traditional indicators such as sales and earnings, assets and liabilities to make a final decision.
In SRI there are two types of screens: positive and negative.
- Positive screens identify companies based upon practices that in some way benefit society, such as sensitivity to the environment or exemplary employee relations.
- Negative screens weed out poor SRI performers, including those that are polluters or that maintain poor working conditions.
Screens were once the exclusive tools of large brokerage houses and investment firms. But the Internet and investing software have made it easier for individual investors to create multiple screen models to help choose their companies.
Rather than passively follow the activities of the companies in which they invest, socially responsible investors often engage management in the issues they consider important. Through shareholder advocacy they exercise their right as part-owners of the company to attempt to influence corporate behavior.
A common practice is to participate in shareholder resolutions, which are petitions drawn up by groups of shareholders that are presented to all the owners of the company for a vote. Typically they urge management or the board of directors to take action on a concern. A resolution might include calling for a company to sever its connections to a repressive government overseas, challenge its executive pay or reveal its political contributions.
While shareholder resolutions have been instrumental in many cases in which companies changed practices regarding workplace conditions for workers, revised projects that harmed the environment and reversed policies that permitted employment discrimination, often they are withdrawn before they are brought up for a vote among all the owners. That can occur for a variety of reasons. Perhaps a resolution has been reached by the company and the petitioners. The company may have successfully argued to the Securities & Exchange Commission, which oversees the process of submitting resolutions, that it failed to meet minimum requirements and so the SEC rejects it.
Community InvestingLow-income and disadvantaged communities are often underserved by traditional financial services. Through community investing, investors can have a direct impact by placing their funds in communities in need. Community investing provides access to credit, equity, capital, and other basic banking products, which can be used for job creation, housing and social services.
This financing is often provided by community development banks, which are similar to traditional banks but focus on community development in needy areas, as well as loan funds and credit unions.
Individual investors can participate in community investing through a variety of community investing institutions (CIIs). They can open savings, checking, money market and individual retirement accounts at banks or credit unions, or make equity or debt investments in venture capital funds and in loan funds.