Values-aligned investing continues to reshape the investment landscape, with $6.5 trillion in US assets under management (AUM) explicitly marketed as Environmental, Social, and Governance (ESG) or sustainability-focused investments according to the US SIF Trends Report 2024/2025. This approach extends beyond financial returns by incorporating investors’ personal values into portfolio construction.
For investors seeking to align their public equity portfolios with their values, two common approaches have emerged and have been utilized separately or combined:
1. Exclusionary Screening: Removing companies that conflict with specific values.
2. ESG Tilts: Allocating more capital to companies with stronger ESG characteristics.
Exclusionary screening is one of the oldest, most accessible, and widely implemented values-aligned investment strategies. Its roots trace back to the 18th century, when Quakers avoided investments linked to the slave trade. Today, this approach involves systematically avoiding companies engaged in activities that conflict with specific social values. While exclusionary screening was among the earliest tools for expressing social values alignment, modern strategies have evolved to address a broader range of concerns, including sustainability and climate-related issues.
Another commonly employed approach, applying ESG tilts, aims to reallocate portfolio weights toward companies or sectors that better align with ESG practices and values. For example, rather than entirely excluding carbon-intensive industries, an ESG tilt might significantly reduce exposure to the highest emitters while increasing allocations to companies with lower carbon footprints or credible transition plans. This method allows for some values expression in the portfolio while maintaining exposure across the full spectrum of market sectors.