IS YOUR MONEY WHERE YOUR MOUTH IS?
Social Screening, Part II

Socially Responsible Investment Strategies with Darron Stover

In our previous column, I began a discussion on the idea of socially screening our investments. The first part of this discussion was centered on negative or avoidance screening. This is the process of filtering our investments through specific social screens, allowing us to avoid investing in companies that profit from the violation of our personal social values.

By choosing to sell or not to own the securities of certain companies, we are essentially lessening the demand for shares of that security, which in turn puts downward pressure on the price of those shares. This is effective because the primary source of accountability for a company's management is shareholders, whose primary concern is to see share prices rise.

A great example of how negative screening works is demonstrated in a recent press release from the North Carolina State Treasurer, Richard Moore, who has divested (sold) nine stocks from the state pension plan due to their involvement in the selling of goods and services to the government and military of Sudan. You can see the press release at the State Treasurers website, www.treasurer.state.nc.us

While punishing companies for irresponsibility is important, it is also possible and important that socially responsible investors use positive or affirmative screening to identify companies that have a constructive impact on our issues. And just as selling shares of a security pressures share price down, the opposite is true when we decide to buy or to hold onto the shares of a security. We are increasing the demand of those shares thus pressuring share values higher and rewarding management for their behavior.

Positive screening can be implemented in a number of ways. The most basic method (but not necessarily the easiest) is to seek out companies that display particularly good behavior for our investment dollars. Research is often difficult on our own, but can be made easier through the internet and through the use of “watchdog groups”. Watchdog groups are generally non-profit organizations formed for the sole purpose of holding corporations and governments accountable for their behavior, often in relation to a specific issue or perhaps a specific industry. A similar method would be to put all the securities from a particular sector in competition for your investment dollars, choosing the one that displays the most responsible ethic.

One of the easier methods and perhaps even more impactful is to seek out industries or sectors that have a positive impact in general. Some examples of this might be investing in companies that develop or generate alternative energy, that distribute natural, organic foods, that provide environmental or recycling services to businesses, municipalities or citizens, that provide some socially valuable service to consumers, etc.

There is one VERY VITAL point that needs to be made about socially screening our investments. We cannot forget why it is that we invest money, which is to achieve some financial objective (i.e., growth, income, preservation, etc.) Charity is great and I certainly encourage everyone to support various causes. But investments are not charity. The fact that a certain security passes a set of social criteria does NOT necessarily mean that it is a good investment. It is very important that we also screen our investments to determine whether they are likely to help us achieve our financial objectives, whether they fall within our tolerance for risk, whether they fit together into a diversified portfolio. We need to look for good, socially responsible securities that are also good investments, according to your investor profile.

Are you supporting the value of companies and the management of companies that display very positive ethics? Are you reinforcing the industries that can bring about positive change to your issues? Is your money where your mouth is?

For over 11 years, Darron Stover has provided wealth management services to clients. It is his higher purpose to help investors meet their financial objectives through socially-responsible investment strategies. Darron is registered to offer securities in NC, FL, GA and NY and to dispense investment advice in NC through FSC Securities Corporation, a Registered Investment Advisor & Registered Broker/Dealer, member NASD & SIPC.  Ask for Darron at (919) 782-0033 or visit www.invest4change.com 3356 Six Forks Road, Raleigh, NC 27609.

Printed in the December 2006/January 2007 issue of Innerchange.