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What is "screened" investments and more specifically ESG?

ESG stands for Environment, Social, Governance. Environmental screening for companies that reduce their environmental impact by eliminating their use of hazardous or toxic materials, using recycled materials as raw materials, developing innovative products with clear environmental advantages, or by employing best in class pollution control methods.  Social screens usually include items like human rights, employee rights, consumer rights and animal rights.  Governance is looking at how companies deal with compensation, incentive packages and are there procedures to encourage sustainability.  Things like encouraging community involvement, being a good neighbor, many real investments into communities. Wikipedia has several links to cover this subject with ESG.  Some groups refer to ESG as SRI or Socially Responsible Investing a.k.a. ethical investing.

Just because a groups says they are ESG investors or filter for ESG doesn't make it so.  There is a best in class definition and then there is a strict no tolerance standard.  How often do they monitor and review their screens and do they do primary research or do they  hire out screening experts?  If this were easy you would see a lot more of these investments.  Everyone I discuss this with that has been doing screening finds it hard and inconvenient.  If done properly it is work, and if you wish to customize more than broad categories it takes intensive listening and research.  Get clear about what you want in your values before chasing some advertisement touting great returns and statements of social or ethical values.  What do you hope to achieve by hiring an ESG labeled investment firm?  Why are you passionate for  _______?  Reflect on the why behind your passion or concern and it will help you get even more clear and then your choices are more distinct. Knowing your story and how you came to admire or detest some issue is an important link in choosing a proper screen for your ESG investments.  Before you seek professional get educated on the basics.  Positive or negative screening and what that means.  What are the specific values you desire to screen? Are these strict screening or best in class or partially screened i.e. less than 30% of revenue comes from questionable activity.  Is there community involvement or industry involvement by those you seek advice?  Ask by what means they are screening investment values or the screeners? 

Another area of screening is that or moral, ethical or biblical responsible mandate.  These would typically avoid stocks/bonds making money in alcohol, tobacco, gambling, abortion, pornography, and other anti family media.  Be careful of labels here.  We do see mutual funds claim to espouse a certain faith or values associated to a faith and yet if screened with third part vendor software it may reveal no screening was done. Remember that wise investing should be seeking excellent methods and process or risk management and to market just based on some "value" is simply not right.  Be screwd, decerning and considering using professional screening service or software.

In case you are wondering if anyone does this would you be surprised that in Europe over $5 trillion and in the U.S. over $3 trillion all screened *?  Would it surprise you that 37 of 50 States also screen their state funds?  

* according to 2010 report from Social Investment Forum



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Comment   |  8 years ago from Maitland, FL