Essential SRI strategies

There are three basic ways that one can approach ones strategy in relation SRI portfolio management. These strategies cover most of the issues that you as a investor want to know about and should help you narrow down your approach.

1. Negative Screening. You know what you do NOT want to invest in and this will form the basis of your strategy. As a investor negative screening will keep you away from certain stock based on your ethical preferences. This screening could include not investing in Tobacco, firearms, mining, etc. If you are looking for fund managers who provide you will negative screening options then there are plenty on the market and this is by far the most common approach to SRI investing. Normally these kinds of funds will create returns in par with other portfolio companies not related to SRI.

2. If you want a more hand on approach you can try to a conduct positive screening approach. Positive screening requires more work as you need to know more about the companies and organisations that you invest in. It could be that you screen for companies that help people to live in affordable housing or companies that invest in R&D in relation to green technology. In most cases it will take more of an effort for you to get to know your portfolio companies and how their strategic opportunities looks like. It is hard to say of positive screening will ensure better returns, however, it will reduce the social risks your portfolio is potentially exposed through just because you know your companies and their behaviour from other approaches then purely economical.

3. Shareholder activism. You want to change the world, you know that the language of business is money and they most salient stakeholder of all is the shareholder. Therefore you have chosen to buy stock which gives voting and not least speaking rights are the general assembly and you (or your fund manager) show up at the general assembly in order to confront board and management with the decisions they have made and not least there impact.   

The kind of portfolio screening that you choose will relay on how you want to work with your portfolio and not least how you perceive risk. Starting from the top is positive screening the most common and least “hands on” approach. You provide guidelines for your portfolio manager and she or he manages your shares accordingly. The second, negative screening enables you to have more control but it also requires more work. There are some portfolio companies that provide positive portfolio screening but they might not meet you personal preferences and you will under all circumstances be on the lookout for new companies that might be included. The last one is really for people who want to make a difference and change corporate behaviour. There are plenty of examples of shareholder activism and it has led to changes in corporate behaviour that being said it requires time and considerable effort to be an effective shareholder activist.

1 thought on “Essential SRI strategies

  1. Pingback: Spread your investment risk using multiple ethical screens « SRI Portfolio Management

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