Corporate Social Responsibility (CSR) Practice Test

What does negative social screening involve?

1. Investing in firms that are considered socially responsible

2. Screening out firms that are deemed socially irresponsible

3. Evaluating firms based solely on economic performance

4. Promoting socially beneficial corporate practices

The correct answer is: Screening out firms that are deemed socially irresponsible

Negative social screening specifically pertains to the process of filtering investments by excluding companies that are considered to engage in unethical or socially irresponsible activities. This method reflects the desire of certain investors to avoid supporting businesses that have a harmful impact on society or the environment, such as those involved in tobacco production, weapons manufacturing, or pollution. By implementing negative screening, investors actively seek to eliminate exposure to these firms from their portfolios, thus aligning their investment choices with their personal values or ethical standards. This is an important aspect of socially responsible investing, as it enables individuals and institutions to direct their capital toward companies that demonstrate positive corporate social responsibility (CSR) practices. Engaging in this practice allows investors to influence the market by penalizing businesses that do not adhere to socially responsible principles while simultaneously encouraging the growth of enterprises that act in ways that are beneficial to society.