(Bloomberg) -- When portfolio managers try to run an ethical portfolio based on avoiding controversial sectors, they may find that investing in firearms, dirty energy and gambling can be more acceptable than adult entertainment.
Almost 40% of global credit funds would exclude adult entertainment when using negative screening, according to a note by UBS Group AG analysts led by Stephen Caprio. Meanwhile, less than 30% of funds would avoid fossil fuel or gambling firms when applying the same method.
Negative screening, or the exclusion of certain sectors and companies, is by far the most widespread method of applying environmental, social and governance criteria in credit funds, according to UBS. A third of U.K. investment-grade managers and around 43% of E.U. managers prefer negative screens rather than selecting bonds on the basis of ESG performance relative to peers.
This is not the first time analysts have flagged shortcomings in ESG selection. Last month, Citi credit strategist Chris Chapman said that common scoring systems tend to favor companies with clear policies, even if these companies operate in the tobacco or oil and gas business.
As interest in ESG investing grows, industry bodies are aiming to provide education on the subject, with the CFA Society of the U.K. launching a certificate on ethical investments later this year.
To contact the reporter on this story: Tasos Vossos in London at tvossos@bloomberg.net
To contact the editors responsible for this story: Hannah Benjamin at hbenjamin1@bloomberg.net, Vivianne Rodrigues
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