How to Track Key Corporate Risks for Your Social Investment
Following a social style may make you feel better about your investments by investing your money with companies that share your values. Meeting social standards can help companies reduce their risks. Risks fall into four categories:
Financial: Does the company make money from its products? Does it have leeway to invest for the future? Is its business sustainable? Are the numbers reported accurately and in enough detail that investors can determine how the business is doing? These are the main factors in measuring financial risk.
Operational: This risk category reflects the ability of the company to move products out the door and to the customers. Are there environmental hazards along the way? Business practices that could haunt it? Relationships with unsavory government officials? That’s operational risk.
Managerial: Companies are run by human beings, with all the good and bad that entails. Managerial risk comes from the potential for bad decisions, crooked behavior, political infighting, or the loss of a key employee. It often ties into other risks.
Reputational: Most companies face stiff competition. Customers can choose among an array of providers for whatever good or service they want, and they sometimes choose based on how well they like the company. A company that’s known for doing the right thing may have a competitive advantage.