Posted on: 10 July 2020
If you're looking to invest, then you have some choice over where your money goes. While every investor wants to see good returns, there are other factors to consider in this process.
For example, you may be keen to invest in companies or products that are environmentally, ethically, or socially responsible. You want some bang for your buck, but you want to get it in the most responsible way you can without causing any harm.
To do this, some investors screen their investments to ensure that they make decisions they are comfortable with. For example, you can use either negative or positive screens. What's the difference between the two?
What Is Negative Investment Screening?
If you work on a negative screening principle, you decide which sectors, companies, institutions, or governments you don't want to invest in. Typically, you make these decisions based on avoiding investments that have negative effects in some way or another.
For example, you might decide that you don't want to invest in companies that work in the tobacco or arms industries. You don't want to associate yourself with — or give money to — businesses that produce products or services that could harm others.
Or, you might try to avoid investments in businesses that are linked to countries that have bad human rights track records. You might shy away from funding companies who exploit workers in overseas countries to turn bigger profits.
The effects of negative screening are mainly financial. You're effectively refusing to fund companies that don't work for the common good. The less money these companies have, and the more reputational damage they experience, the less they can flourish.
What Is Positive Investment Screening?
If you take a positive screening approach, you actively seek out companies or industries that you want to support. You connect with something positive about them.
For example, if you want to make green investments, you might invest in technology companies that create environmentally-friendly solutions or that are known for their commitment to green principles. Here, you help fund companies that are environmentally responsible and proactive.
Or, you might invest in companies that have strong social and ethical practices. In either case, you give these companies a financial boost to help them grow.
Keep in mind that you can mix both approaches if you wish. There's no reason why you can't screen out companies you don't want to be associated with and target others who match your own principles and aims.
To learn more, contact a socially responsible investment advisor. They can help you choose the right approach for your needs.Share