How often should screening guidelines be reviewed?
What should the review lead to?
What benchmarks should be used to evaluate screened portfolios?
What performance data exist for managers using screens?

The biblical Noah had it easy. . . . He had clear instructions from God, the material to build the Ark, a known number of animals to save and the right amount of space to keep them.

-- Christopher Lehmann-Haupt (1995)^*

[It] is easier to build a road than to build an organization to maintain that road.

-- Robert D. Putnam (1993)^**

Many boards review their SRI guidelines annually when they reconsider their investment guidelines. Some institutions appoint a special committee to review their social screens and report on them to the board. Others assign this duty to the investment committee.

How often should screening guidelines be reviewed?

A board should review its mission-based investment guidelines at the same time and in the same context as it reviews its investment policies generally. Although this is usually an annual task, nothing prevents considering the guidelines at any time.

At the same time, the board should also review comments by constituents on screening and other social investment policies. As with criticism of any other part of an investment policy, the board should respond in the context of a disciplined review of the policy.

What should the review lead to?

The review provides an opportunity to alter policies and guidelines. In practice, most boards reread and then reaffirm the existing documentation.

The review should evaluate the general guidelines, which probably will not change, and the working guidelines. The working guidelines may well change or, in practice, have shifted since their last review. For example, in the South Africa era some institutions adopted screening standards tied to the Sullivan Principles. As the Principles evolved over time, so too, did the institutions' working guidelines.

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What benchmarks should be used to evaluate screened portfolios?

At this writing, one general benchmark exists for socially screened equity portfolios, the Domini 400 Social Index which is discussed above. It includes about 250 of the S&P 500 stocks. Some managers have developed their own benchmarks from screened subsets of their universes or of the S&P 500.

The more comprehensive the screens are or the more stringent a screen is, the less appropriate general benchmarks are for a screened portfolio. Unscreened portfolios include industries and sectors -- such as aerospace, leisure (gambling), and commodity chemicals -- that may be largely or totally absent from screened portfolios.

What performance data exist for managers using screens?

In an ideal world, an institution would be able to gage the performance of its managers against a universe of managers adopting the same style. Various consultants maintain such data. However, as yet no consultant tracks managers of socially screened accounts separately from others in their style categories.

The development of databases on the performance of managers applying social screens will be difficult. In addition to the well-known problems of identifying who runs screened accounts, there is the problem of categorizing managers according to the screens they apply. An aggressive growth manager who applies a loose set of exclusionary screens probably cannot be compared fairly with a manager with a similar financial style but who applies rigorous exclusionary screens as well as environmental and product quality screens.

Whether the comparison is unfair or not, at this moment no one has the capacity to establish peer groups for the different screening styles.

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