Negative screening is 'politically correct'
EUROPE - A positive investment selection approach to identify companies with good environmental, social and governance (ESG) practices is too unattractive for most pension funds, experts have argued.
Ulrika Hasselgren, executive vice president of Ethix SRI Advisory, a Swedish consultancy firm, told delegates at the World Cup for Investment Management Forum in Paris: "It is easier to apply negative screening instead of implementing a positive selection. Negative screening can also be politically correct for a pension fund."
Within an ESG approach, a fund can opt for ethical investments by selecting companies as unsuitable investments (so-called ‘negative screening'), as well as through social responsible investing and sustainable investing, each of which has different rationales.
That said, looking at the Nordic pension fund market, she noted there are a number of pension funds who combine a negative screening method with a positive selection, in situations where certain corporate behaviour is dubbed unacceptable and positive factors are added.
Martin Cech, fixed income manager at ESPA financial advisors, owned by the Austrian VBV pension fund, countered this argument by suggesting a positive or negative screening approach depends on the mandate.
He explained the VBV fund has already incorporated ecological, social, ethical, clean technology, alternative energy and positive labour standards into its portfolio.
However, Cech added these standards will only be applied within its social responsible investment (SRI) portfolio.
"There is a broad range of positive screening within our SRI. It is to us very important to implement both," he said.
Nonetheless, according to panellists at an SRI discussion at the conference last week, SRI investing has a ‘decency factor', and the concept has grown drastically in Europe as a result.
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