Positive screening
What is Positive screening?
Positive screening favors issuers or securities with comparatively strong sustainability characteristics within a defined universe or peer group.
Scores should be versioned because company disclosure, provider models, peer groups, and weights change. A historical chart reconstructed with today's score methodology can create look-ahead bias. Store the observation and methodology available on each date, including missing-data treatment and subsequent restatements. Provider changes should not silently rewrite prior results.
Users should see scores alongside their underlying indicators.
How selection works
A manager can select leaders within each industry, overweight stronger scores, or require minimum characteristics. Best-in-class methods retain exposure to sectors that broad exclusions remove, including transition-intensive industries. Results depend on the peer group, indicators, weights, threshold, and rebalance schedule. A leader relative to peers can still have substantial absolute adverse impacts.
Data and scoring
Scores combine disclosures, estimates, controversies, policies, and modeled exposure. Aggregation can let strength in one topic offset weakness in another. Provider disagreement is common because materiality, scope, and judgment differ. Investors should inspect underlying indicators and data coverage rather than treat an ordinal score as a precise, permanent measure of corporate quality.
Portfolio effects
Tilts can introduce quality, growth, size, sector, region, or disclosure biases. Companies in markets with stronger reporting may score better even when operations are not superior. Turnover occurs as scores and peer rankings change. Performance should be attributed against a suitable benchmark to distinguish sustainability selection from conventional factors and changing industry weights.
Incentives and limitations
Positive selection can reward relative improvement and maintain engagement access, but may also reward policy disclosure over outcomes. A ranking forces a leader even when every peer performs poorly. Backward-looking scores may miss transition plans, while unverified targets may overstate progress. Combining relative and absolute thresholds can make the intended standard clearer.
Practical due diligence
Review universe, peer classification, metrics, weights, controversy overrides, missing-data rules, frequency, and score version. Examine holdings near cutoffs and how corporate events are treated. Report absolute exposures alongside ranks. Avoid claiming that selected issuers are sustainable in every respect or that a higher portfolio score proves lower financial risk or greater real-world impact.
Also known as: best-in-class screening
Sources and further reading
- What is responsible investment?, Principles for Responsible Investment
- SASB Standards and materiality, IFRS Foundation