State Street Global Advisors’ Approach to ESG Screening: Methodology
ESG screening involves excluding specific companies, industries, or countries from an investment portfolio based on ESG factors or risks. While this type of screening may sound relatively simple, 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 the screening.
Investors who seek screened portfolios often express a desire for screening in a specific area— for example, seeking to screen tobacco from a portfolio. But there are a variety of ways that a company might be involved in tobacco: for example, as a manufacturer, licensor or retailer.
Additionally, there are multiple potential thresholds for what it means to be “involved” in tobacco. Should a business that derives 1 percent of its revenue from tobacco-related products count as “involved”? What about a business that owns a significant portion of a tobacco manufacturer but does not conduct its activities directly?
There are several ways in which a company can be considered to be involved in a particular product or service. Drivers of product involvement might be described in terms of :
Revenue thresholds What percentage of a company’s total revenue is derived from this industry, product or topic?
Activities What part of the value chain is the company involved in?
Significant ownership relationship with a company Is the company an owner of, or owned by, another company with involvement in this issue?
This information is for informational purposes only, not to be construed as investment advice or a recommendation or offer to buy or sell any security. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. There are no guarantees regarding the achievement of investment objectives, target returns, portfolio construction, allocations or measurements such as alpha, tracking error, stock weightings and other information ratios. The views and strategies described may not be suitable for all investors. SSGA does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. Investing entails risks and there can be no assurance that SSGA will achieve profits or avoid incurring losses.
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.
Images of NYSE Group, Inc. are used with permission of NYSE Group, Inc. Neither NYSE Group, Inc. nor its affiliated companies sponsor, approve of or endorse the contents of this program. Neither NYSE Group, Inc. nor its affiliated companies recommend or make any representation as to possible benefits from any securities or investments.