By: Chat Reynders, Chairman and CEO of Reynders, McVeigh Capital Management and Co-Portfolio Manager of AdvisorShares Global Echo ETF (GIVE)
It's no secret that positive screening as an investment strategy is becoming increasingly popular as advisors seek ways to identify substantive investment opportunities. The practice focuses investors on the elements of a company that can make a positive impact both on the bottom line and on society, pointing to socially progressive companies that generate returns.
Positive screening derives from the traditional roots of Socially Responsible Investing (SRI), and was ironically born out of the polar opposite approach: negative screening. In the early days of SRI, religious communities avoided "sinful" industries such as tobacco and military manufacturing, and anti-war activists supported that outlook as part of the protest against U.S. involvement in Vietnam.
The 1980s provided a new dimension and increased following as anti-apartheid sentiment led to divestment from South Africa. A youth movement, legislative action, and the staggering amount of money at stake brought into focus the power of avoiding certain industries.
Investment firms took their cue to capitalize on the momentum. The potential of attracting socially conscious capital spurred on by divestment validated the idea that a service could be established to cater specifically to these clients.
The foothold gained during this time period grew beyond any one social issue. According to a 1995 Dow Jones article, "Despite predictions that the end of apartheid in South Africa would lead to the demise of socially responsible investing, three out of four U.S. money managers who handled investments for clients opposing apartheid continue to manage responsibly invested portfolios."i
The seeds of modern SRI were further nurtured by a team of accidental participants focused on employee advocacy. In 1984, Milton Moskowitz and Robert Levering published their first analysis of The 100 Best Companies to
