Certified Environmental Social and Governance Analyst (CESGA) EFFAS Practice Test 2025 - Free CESGA Practice Questions and Study Guide

Negative screening in ESG investing refers to the practice of excluding certain sectors or companies from an investment portfolio based on environmental, social, or governance (ESG) criteria. This method allows investors to align their investment strategies with their ethical beliefs or values by avoiding areas that may conflict with their sustainability goals.

For example, an investor might choose to avoid companies involved in fossil fuels, tobacco, or firearms because these industries are often associated with negative environmental or social impacts. This approach not only reflects the investor's values but also aims to mitigate risks associated with potential regulatory changes or negative public perception related to companies operating in these sectors.

The other options do not accurately capture the essence of negative screening. Investing in all sectors of the economy does not take ESG concerns into account, and solely focusing on financial returns ignores the social and environmental factors that define ESG investing. Similarly, concentrating on high-risk stocks does not necessarily relate to ESG criteria and may not involve any screening process based on environmental or social governance issues.