CFA Level I · CFA Level I Exam · Basics of Portfolio Planning and Construction
An investment committee excludes tobacco and weapons producers from its equity portfolio because the trustees object to those industries on moral grounds. The ESG implementation approach used is best described as:
The approach is negative screening. The committee removes entire industries, tobacco and weapons, from the investable universe on ethical grounds. Best-in-class instead picks the strongest ESG performers within sectors, and thematic investing focuses on particular sustainability themes such as clean energy or water.
- Athematic investing
- Bnegative screeningCorrect
- Cbest-in-class selection
Explanation
Excluding whole sectors or companies based on values is negative (exclusionary) screening. Best-in-class selects the leading ESG performers within each sector, and thematic investing targets specific sustainability themes.
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