2. SRI approaches and criteria INTRODUCTION This chapter outlines the general criteria used to include or exclude investments in a SRI portfolio and reviews the common screening strategies used in index construction as well as SRI portfolios. Construction of SRI portfolios is based on several premises. Portfolios can address specific concerns or be generic exclusions of the common ‘sin’ stocks. Sin stocks conventionally refers to the common stock of companies with core business in alcohol, arms and weapons, and tobacco products. Other SRI portfolios are inclusive of companies with stellar corporate governance, environmental management and social considerations, companies that adhere to international or industry standards, and companies with awards and recognition from third parties, such as NGOs. Specific concerns addressed in SRI portfolios are dependent on the investor. They range from investing with religious requirements (for example, Islamic investing), moral convictions, or other interests such as clean fuels and green technology. Similarly to developing a conventional portfolio, SRI investors must specify their investment objectives, ascertain their risk tolerance, and determine their investment horizon. However, SRI fund managers must take the additional step that makes SRI different from conventional investing. The fund manager must identify the values and beliefs held by the investor, and work towards aligning the portfolio to these additional goals. As discussed in Chapter 1, some of these goals are seen by SRI detractors as being additional constraints to all the possibilities in the investment universe. However, investing with an SRI mandate incorporates the belief that doing good...
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