From
Your Perspective:
Socially responsible mutual funds
How fund screens work
Socially responsible funds select investments first on their investment potential and then on how well the corporate policies and practices align with the funds' goals. The process, known as screening, involves asking a series of questions about each potential investment. The answers determine whether or not the investment is acceptable.
SR funds may screen potential investments in two ways: negative, or avoidance, screening and positive screening. The more basic form of socially responsible investing is negative screening, which is the conscious decision not to invest in companies whose products or policies are inconsistent with the fund's social, religious, or environmental criteria. Negative screening may be narrow — excluding only weapons producers or companies involved with alcohol, tobacco, and gambling — or very broad, for instance, excluding firms that do not meet specific diversity, workplace, and environmental standards.
Positive screening
When a fund uses positive screening, it actively searches for companies that meet its criteria. For instance, a fund may seek out companies that demonstrate leadership in areas such as product design, community development, environmental practices, and human rights.
A common form of positive investing is choosing companies that are leaders in an industry, despite the less socially responsible reputation of that industry as a whole. The hope is that the standard of business in that industry overall will be raised as a result.
