Exclusionary screening can be applied to portfolios as a standalone ESG approach, or in combination with other styles, such as thematic investing or integrating ESG into the investment process.
Screening may sound simple, but the process involves a significant amount of judgment on the part of asset managers or the third party data providers with whom they partner to conduct exclusionary screens.
At State Street Global Advisors, we believe it important to offer our clients our own perspective on how to conduct exclusionary screening, and to approach this process with the same rigor that guides all of our work.
We have developed a recommended approach to exclusionary screening in ESG portfolios. This approach represents the shared perspectives of our investment teams across active and index investment styles in equity, fixed income, and alternatives.
We follow a well-defined methodology that can be flexibly applied to different use cases.
We use inputs from multiple data providers where accessible to us. This broadens our overall coverage universe, and reduces the potential biases of a single data provider.
Our point of view is attentive to the impact on tracking error of excluded securities.
Deviations from firm-wide consistency are made where appropriate to adapt to investment styles, national legislation, and/or market-specific norms prevalent in certain regions.
There is a growing interest among global investors in divesting, or minimizing exposure to, Fossil Fuel Reserves in their portfolios. Specifically, more than 1,200 global institutional investors, with $14.6 trillion in combined assets, have committed to divesting from fossil fuels in 2020. These investors seek to position themselves in opposition to the physical effects stemming from climate change, and seek to prepare their firms for future regulation around fossil fuels.