What Is Positive Screening?

To help a fund manager avoid having too small a selection of companies to choose from, positive screening can be used. This enables the ethical investment fund to invest in a different selection of firms. Some funds will use both positive and negative screening.

Positive screening is essentially looking for companies who try to make a worthwhile contribution to society or the environment. This enables the fund manager to choose from a 'universe' of companies that is actively good.

However, different funds will view the same company in different ways meaning that firms will be eligible for some ethical funds and not others.

As you may imagine, by using either positive or negative criteria, the resulting companies can be wildly different. This means that without any real effort or analysis, it is easy to see why many ethical investment funds seem to be totally different and have differing risk ratios and annual growth returns.

Watch These Free Videos And Learn How To Trade Financial Markets

It must go without saying that whilst this may be a good filter for investing in the most ethical and responsible companies, it is not a guarantee of stock market success.

Some activities which are viewed well and may be used as selection criteria include:

- equal opportunities for employees

- environmental policy (including clean energy generation, energy conservation and recycling)

- forestry and / or sustainability

- waste disposal companies

While each of the above mentioned activities is clearly a worthwhile and responsible activity, they probably do not strike you instantly as the most profitable activities (when compared to oil or tobacco for example). This has certainly been the case in the past, however, this may be changing.

As the path towards binding global legislation to prevent and mitigate climate change continues (within the United Nation's UNFCCC process) it is clear that all things 'green' are the future. Your author has attended an event at COP15 in Copenhagen where a prominent investment banker from the most famous investment banking firm described the move to a low carbon economy (for the world) as the largest emerging market in the history of mankind.

In fact, the conversation at the event mostly revolved around how best to encourage homeowners to retrofit their properties with effective insulation. They were, of course, discussing the 'housing stock' of the world! Now thats a market...

If this becomes even partly true, then businesses focusing on environmental protection, recycling and clean energy generation and funds using positive screening as an investment strategy ought to do very well between about 2013 and 2040 or so.

The kinds of amounts of money being discussed as expected to be required to enable the move to a low carbon economy globally are in the tens of trillions of US dollars. These amounts will need to come from governments in the form of subsidies, tax rebates and grants, from businesses in the form of investment in new infrastructure and individuals. There are a range of plans being discussed, and there is much change in the thinking around the best ways to proceed, but broadly, it is expected that a timeframe that runs until 2050 will be needed.

While the past may not have been about environmental stewardship and responsibility, the future most certainly will be.

To read more about other ethical investment issues, please visit these pages:

What Is Ethical Investment?

The Ethical Investment Dilemma

What Are The Main Ethical Investment Strategies?

How And Why Does Positive Engagement Work?

Should You Be Investing In Water?

Are Ethical Investment Funds Higher Risk Than Other Similar Funds?

What Activities Does Negative Screening Filter From Ethical Investment Funds?