Positive screening is the process of finding companies that score highly on environmental, social and governance (ESG) factors relative to their peers.
These companies can then be selected for sustainable investing portfolios. It is the flipside of negative screening, which aims to wheedle out the low-scoring companies so that they can be avoided. Many investors view negative and positive screening as two sides of the same coin and run the screens simultaneously.
Both negative and positive screening are always done in peer comparison. Companies are judged against others in their peer group according to their ESG characteristics. For most investors, positive screening means identifying the highest-scoring part of an SI metric, usually the top 20%-50% stocks ranked on the ESG score.
The positive screening process is often used to build portfolios with enhanced sustainability profiles subject to criteria such as superior environmental records, strong reputations for labor practices and gender equality, and good governance of issues such as non-involvement in controversies. As such it is a good tool for thematic strategies and impact investing strategies. Positive screening is also commonly used for building best-in-class strategies that target the companies in sectors with superior ESG scores.