Exclusionary Screening

Exclusionary screening, also called negative screening, is one of the oldest and most common forms of responsible investing. It began with religious investors avoiding businesses such as alcohol, tobacco and gambling.

Common exclusions today include tobacco, controversial weapons such as cluster munitions, thermal coal, oil sands, gambling and companies that breach international norms on human rights, labour or corruption. Exclusions may be absolute or based on thresholds, such as excluding companies that earn more than 10% of their revenue from coal.

For example, an ethical fund might exclude all tobacco producers and companies earning significant revenue from fossil fuels.

Exclusionary screening allows investors to align their portfolios with their values and avoid certain risks. However, critics argue that excluding companies does little to change their behaviour, since others will buy the shares, and that engagement can be more effective. Exclusions can also reduce diversification and cause portfolios to perform differently from the broader market. Positive screening, which selects companies with strong sustainability performance, is a related approach.