Three Components of SRI

1.  Screening
Screening is a process whereby investments are selected based on certain criteria and requirements. For some socially responsible investors, this involves screening out those companies that do not meet the investor's ethical, environmental or social concerns.

Negative Screening
The most prevalent form of screening is negative (or avoidance) screening. This may include screening for companies with involvement in certain industries such as:

• Tobacco production
• Alcohol production
• Military or weapons-related contracting
• Gambling
• Nuclear power
• Pornography

With negative screening, an investment decision is made to “avoid” a company based on the company's performance on some or all of the criteria listed above. SRI fund companies apply different screens and standards depending on their objectives. While some SRI funds will immediately exclude a company once it has any involvement in a prohibited activity (e.g. military contracting or weapons production), others may include such companies as long as their income from these screened areas is below a specified threshold such as 10% of their total income. Additionally, most SRI fund companies employ a secondary screen behind their negative screens to examine suppliers to excluded companies or industries.

Positive Screening
Positive (or affirmative) screening also involves the application of social and environmental guidelines or "screens" to the investment decision process.

Positive screening is more proactive, selecting companies that show leadership in social issues, such as companies with exemplary employee relations practices or companies that make a contribution to social, economic or environmental sustainability. SRI fund companies that employ these positive screens will seek out such companies.

2.  Shareholder Advocacy
Shareholder advocacy in the context of SRI is the process of using shareholder influence to help bring about positive social and environmental change at corporations. This can include corporate engagement (communicating with management on particular issues), filing shareholder resolutions and using the threat of divestment to bring about positive change.

Corporate Engagement
This is the process of meeting or communicating with a corporation's management team in an attempt to persuade them to modify their corporate behaviour on the issues or actions of concern. As an investor, you can engage with corporate management through meetings, or communication by telephone, letter or other means. Speaking with company management directly about issues of concern can avoid the confrontational approach of shareholder resolutions.  Although large institutional shareholders typically have more clout, addressing a letter to the president or the Investor Relations department as a shareholder will usually get a response in order to initiate dialogue.

Shareholder Proposals
In some cases, you may want to use your rights as a shareholder to persuade others to pass a shareholder's resolution mandating that management take certain actions. Additionally, some socially responsible investors actively vote their shares at the company's annual general meeting to ensure that the company hears their SRI concerns.

Divestment
If corporate management is adamant that it does not want to heed your wishes as a shareholder, you may want to consider selling your shares as a way to show your displeasure with the company on their lack of action. Divestment also ensures that your portfolio is consistent with your views when you feel strongly about a particular issue or action.

3.  Community Investment
Often referred to as Community Development Investments (CDI), or caused-based investing (in the UK), this is the investment of money into community development or micro-enterprise initiatives that contribute to the growth and well being of particular communities. One approach to community investing is a growing movement within the SRI community to set aside a small portion of each portfolio to invest in micro-lending opportunities. This is the placement of money in businesses or investments reflecting a vision of an alternative kind of economy. The idea is to reverse the drain of capital and income that debilitate low-income communities.

Canadians who invest in community loan funds are putting their money directly to work in local communities. This has provided large numbers of micro-entrepreneurs with access to capital to start their own businesses, capital that would not have been available through conventional banking institutions.