Shades of Grey in Ethical Screening

Sometimes the application of your values is an easy black and white call, but more frequently its a shade of grey. Negative screening can quickly become a slippery slope involving very personal judgment calls. For instance, everyone today screens out tobacco companies because their products are known to cause death and disease. Most everyone also excludes companies in the business of alcoholic beverages, and gambling. One of the most popular ethical mutual funds, the Domini Social Equity Fund , excludes all companies in the tobacco, alcohol, gambling and weapons industries. Other funds also exclude all oil and chemical companies as damaging to the environment. These are classic "sin stocks". But some people see nothing wrong with these businesses.

Most ethical investors today will also screen for companies that manufacture military weapons, or promote nuclear energy. Again, others disagree and believe in a strong defense. If you do military screening, it can effect many less obvious investments, for instance, many large conglomerates such as General Electric (GE). In addition to manufacturing well known consumer products, jet engines, NBC and CNBC, GE is also a major nuclear weapons manufacturer.

Some individuals even exclude all pharmaceutical companies on principle as promoting addictions, and wrong attitudes toward health care. Some feel strongly that the genetic engineering of seed crops by Monsanto Corporation (MTC) will cripple small farms and third world agriculture. Boise Cascade (BCC) is now under attack for selling wood products taken from old growth Rain Forests. Other's critique Wallmart (WMT) for destroying small local business, its environmental record, and other offenses. Oil exploration companies such a Unocal (UCL) come under attack for supporting repressive governments such as is now in place in Burma.

Many people also screen out certain companies within an otherwise acceptable industry because they think their products lack quality or are inferior. For instance, some who have had their computer crash one too many times exclude Microsoft. (MSFT) Others may love Microsoft products, and admire the fair and even generous way they treat their employees, but still screen out Microsoft because of what the U.S. Department of Justice considers their unfair and monopolistic business practices. Some people look closely at employment practices, and, for instance, screen out any company that deals harshly with unions, or discriminates. Some even screen out companies whose advertising they find offensive. So you see Negative Screening can become a very personal and involved process.

Some of the Ethical Mutual Funds you will find referenced here may very well have companies in them that you would not approve of. We suggest you read an article in Mother Jones magazine which criticizes many Social Responsible Investment Funds for that very reason. Another good article can be found in Better World Magazine.

The best way is to make your own judgments, and investigate a company yourself before you invest. Our Research Tools section opens doors to a wealth of information on all publically traded corporations. Look not only at their products, but how they create them. Try and determine a companies business and employment practices. Naturally companies that engage in "unethical" or even questionable practices do not go around advertising it. Many are quite clever at deception, and even paint themselves as good citizens. For instance, most consumer product companies today present themselves as somehow environmentally friendly, which has prompted the phrase "greenwashing," and "greenwash." Now the clothing manufacturers are starting to do the same phony thing with what is called "sweatwash." Don't be fooled by all the propaganda. Look past the clever public relations campaigns and do your own research.