<\/span><\/h2>\n\n\n\nWith the rapid global growth of ESG and sustainable development investments, the size of funds related to ESG has multiplied, currently totaling over $30 trillion in capital.<\/strong> As investors in ESG funds, our foremost concern lies in investment strategies and standards. According to the GSIA\u2019s 2020 ESG Investing Report, the widely adopted approach among investment institutions is ESG integration. However, for the general public, the most fundamental strategy remains the most mature negative screening method.<\/p>\n\n\n\nTracing its origins, the prototype of negative screening emerged in the 18th century. Religious groups first integrated their beliefs into investment decisions, avoiding companies involved in tobacco, alcohol, or gambling\u200a\u2014\u200asteering clear of these \u201csin stocks.\u201d Today, despite its decline, negative screening still stands as an unparalleled choice for constructing value-aligned investment portfolios. In this article, we will introduce screening methods in ESG investment strategies and delve into the techniques and performance of negative screening, helping you better understand the essence of ESG investing.<\/p>\n\n\n\nGlobal Growth of Sustainable Investing Strategies 2016\u20132020. Source: GSIA 2020 Report<\/figcaption><\/figure>\n\n\n\n<\/span>Investing in Good ESG Companies Through Screening<\/span><\/h2>\n\n\n\nWhat is ESG Investment Screening? ESG investment screening is one of several methods when constructing portfolios under ESG (Environmental, Social, and Governance) issues. This approach involves including or excluding potential investment projects based on investor preferences, values, or ethical viewpoints. Investors can utilize a range of criteria to screen which companies, industries, or activities meet the criteria for a specific investment portfolio, or conversely, to filter out those that do not. These criteria may be established based on the investor\u2019s preferences, values, and moral perspectives. <\/p>\n\n\n\n
For example, you can exclude the largest greenhouse gas emitting companies through screening (Negative Screening)<\/strong>, or select the lowest emitters (Positive Screening<\/strong>). Alternatively, you could employ investment screening based on standards set by organizations such as the OECD or the United Nations (Norm-based<\/strong>), ensuring companies adhere to their standards. A brief overview of various screening methods is depicted in the table below:<\/p>\n\n\n\n<\/span>Types of Investing Methods by Screening<\/span><\/h3>\n\n\n\nTypes of Investing Methods by Screening. Source: integrated from PRI Responsible Investment Report<\/figcaption><\/figure>\n\n\n\nIn the realm of responsible investment, utilizing screening to address ESG issues has evolved for long. Through screening, investors can better consider the crucial aspects of ESG, and select investment projects that align with their values. This simultaneously reflects a concern for sustainability and social responsibility, fostering a stronger alignment between investment and your sustainable beliefs.<\/p>\n\n\n\n
<\/span>How Does Negative Screening Work?<\/span><\/h2>\n\n\n\nAmong these three screening methods, negative screening is favored by many investment institutions due to its direct reflection of individual values. In practice, negative screening does not have an absolute definition. But generally speaking, if a company performs poorly in a particular issue, it is excluded; there is also the practice of filtering out entire industries based on specific issues, such as highly controversial industries (tobacco, alcohol, adult industry, etc.), or industries with high sensitivity to climate change.<\/strong><\/mark><\/p>\n\n\n\nAs shown in the diagram below, the purpose of negative screening is to refine the selection of stocks for an investment portfolio. Typical factors sought during the screening process include high carbon emissions, poor labor relations, and governance issues, among others. Negative screening can also be used to avoid investing in industries considered highly regulated or with legal risks, such as fossil fuels or tobacco (subject to regional and cultural variations, not absolute). Finally, filtering out companies with lower ESG scores provided by third-party ESG rating agencies is also a feasible approach.<\/p>\n\n\n\n
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