Funds invested under the positive screening, also known as inclusion based approach,
grew 69% to $1.3 trillion globally between 2016 and 2020, according to the latest Global Sustainable Investment Review
What is positive screening?
Positive screening, or inclusion based investing, is an approach where companies are included in a portfolio according to defined criteria.
This could be the industry they operate in, such as renewable energy, or an alternative strategy could be how they score on ESG criteria.
What is ESG criteria?
Environmental, Social and Governance (ESG) factors are used to assess a company’s societal contribution with regard to their stakeholders (employees, partners, institutional investors, subcontractors and customers) and the environment.
They also serve to guide and structure the analysis of a company’s financial performance.
Positive screening is a core approach in Environmental, Social and Governance (ESG) investing
Funds invested using positive screening grew 69% to $1.3 trillion globally between 2016 and 2020, according to the latest Global Sustainable Investment Review. The growth was much faster compared to the traditional exclusion approach to ESG, which screens out companies in negative scoring sectors such as gambling and pornography.
In contrast, inclusion strategies only fund companies that exceed certain ESG criteria. This could be across general targets such as the United Nations’ Sustainable Development Goals (SDGs), or in specific areas such as climate change or human rights.
One factor driving positive screenings popularity is increasing interest among financial advisers and their clients in different approaches to ESG investing.
Why use positive screening?
The positive screen approach may suit investors who only want to fund companies that make a positive impact on ESG factors.
Also, some negative screening approaches exclude whole sectors, such as weapons manufacturing or energy. But inclusion can take a more precise view of each company’s actual ESG impact.
For example, some major energy companies have a strong commitment to developing renewable energy, so we believe they should not automatically be excluded from portfolios.