Exclusion
Exclusion refers to the action of prohibiting a company’s securities from being included in a portfolio due to unethical, harmful, or illegal business activities. ESG criteria are utilized to assess a company’s compliance with desired standards, and if found lacking, it may be excluded from investment consideration, thus restricting its access to capital.
The decision of what to exclude often reflects investors’ ethical considerations, with many referencing the principles outlined in the UN Global Compact as a benchmark for unacceptable business practices.