All In: Why ESG Funds Must Go Beyond Exclusionary Approach

Posted by Dana Funds Investment Team on Aug 24, 2021 9:08:44 AM

Are ESG strategies more about the companies you avoid, or the companies you change? It’s a key difference among ESG funds, and could be a key difference in what your clients want from ESG investing.

Some strategies are focused more heavily on exclusionary investing – using ratings and screens to “weed out” companies that have a heavy carbon footprint or score poorly on other social or governance metrics. Simply avoiding those companies may in fact be the approach your client wants.

Other managers, including Dana, might use screens. But they also recognize that a company scoring poorly today may be making significant progress in moving the business in a positive direction for the future. The easiest example to conceptualize might be a utility company that is using fossil fuels for electricity now, but has a decade-long plan to move toward renewables.

We are strong believers in this “inclusionary” approach, and explained why in a recent call with clients and prospects. As Portfolio Manager Duane Roberts explained on the call:

“Going back to our origins, we always wanted to go beyond just the purely exclusionary approach and look at it from the positive screening and looking for best behaviors … Our approach has always been, ‘Where can we find opportunities to affect these environmental issues, to affect social issues? Where can we affect corporate governance within the individual companies that we invest in?" and move things in a positive direction instead of just focusing on, "These are bad actors, and therefore we're going to avoid everything having to do with them.’"

“We would rather move companies and our economy forward in a positive way rather than focusing on punishing the bad actors, if we can do that. Sometimes you've got to punish the bad actors, but we've always tried to take it in a more positive direction.”

To hear more about our history in ESG investing, and what makes our strategies different from a growing field of funds in the space, we invite you to listen to the full call.


ESG Due Diligence: Matching a Strategy with Your Client's Objectives


The Dana Funds are distributed by Ultimus Fund Distributors, LLC. There is no affiliation between Ultimus Fund Distributors, LLC. and the firms referenced in this blog post.