Published on September 24th, 2008 | by Stephanie Evans

5 Stock Screening Strategies

If you want to be a socially responsible investor, how do you pick the
right stocks to invest in?

Here are five general strategies to help
you screen companies for social concerns:

Screening Investments

As with any other type of investing, you need to select a potential portfolio based on your financial needs and how much financial risk you are ready to assume. Next, determine your most important social concerns and decide which of those investments also meet your social goals.

Follow these five guidelines to determine what you’re ready for:

All or Nothing: Basically a scorched-earth strategy. For example, if you do not believe in utilizing animals in any kind of product testing, you might not invest in any pharmaceutical companies, even if they have taken steps to reduce their use of lab animals.
Proportionate Impact: A strategy that allows investments in companies that have an impact on your social concerns, but that have implemented offsets to that impact. You then have to determine what proportion of offset is acceptable.
Best of Industry: This strategy picks companies for investment that have the best policies in their industry on a variety of social issues. You will need to use unbiased sources to determine the best records.
Primary versus Secondary Involvement: How far down the supply chain will you go in assessing social concerns? For example, if you’re concerned about the destruction of rainforests, you might not want to invest in a large-scale fast food operation, since they buy some of their beef from providers who may be destroying rainforests for cattle pasturage (secondary involvement).
Actual versus Potential Problems: This strategy excludes investments in companies whose business, in and of itself (nuclear energy, for example), has a high risk of causing an impact in your area of social concern even if it hasn’t happened yet.