Ethical Investment Criteria

What is ethical investing?

Positive Screening

Positive screening, meanwhile, is a way of evaluating companies and rewarding those that are paying close attention to the impact they make on society and the environment, while encouraging other companies to engage and improve their ESG scores. By ESG, we mean companies that are proactive when it comes to socially responsible business practices, human rights considerations, positive employment practices and environmental protection. Positive screening also seeks companies that offer good growth prospects from a sound financial base.

Negative Screening

Negative screening has been used as a tool in Ethical Investment for a long period and is a way to exclude business practices that are not believed to be ethical. In this way investment managers can penalise those industries with unsustainable business models and indirectly encourage company leaders to change their business practices by adopting more ethical and socially responsible policies. To that end, our portfolios seek to limit exposure to companies that are involved in alcohol, animal testing for cosmetic purposes, armaments, environmental damage, gambling, pornography and tobacco.

Tatton’s approach to positive and negative screening

Our approach to screening has multiple stages. In terms of positive screening, we are looking for funds who use ESG metrics within their investment process, where securities with good or improving ESG characteristics are recognised and therefore, the final portfolio will reflect some of these positive traits.

For negative screening, as part of our fund search we look for those funds that explicitly include screening as part of their investment process, usually carried out by a risk / compliance function. We use third party software research and data to highlight exposures to those industries or products and services we deem unethical and finally, we receive all holdings directly from fund managers so we are able to interrogate and challenge any holdings we feel need to be queried.

The table below shows the specific criteria for each of the practices we exclude through negative screening. One of the challenges in managing Ethical portfolios for negative screening is how to exclude sectors and still build a portfolio. For example, the global economy is in the most part dependent on fossil fuels to function and so it is not possible to negatively screen for the use of fossil fuels since that would exclude virtually all investable businesses. We adopt a percentage of turnover to manage this challenge and have adopted strict criteria to ensure our portfolios are constructed to best match the Ethical criteria that investors in our Ethical Portfolios require.