What is norms-based screening?

What is norms-based screening?

• A. Excluding investments based on a company's behavior regarding internationally accepted norms and standards surrounding human rights, labor practices, and other issues such as the UN Global Compact principles or the Universal Declaration of Human Rights
• B. Selecting only companies with perfect ESG scores regardless of sector
• C. Investing in firms with high carbon intensity regardless of governance
• D. Prioritizing investments in sectors with the highest growth

Answer: (C)

Norms-based screening looks at whether a company adheres to internationally recognized norms and standards, and then excludes those that don’t. It uses benchmarks like the UN Global Compact principles or the Universal Declaration of Human Rights to decide what to avoid. In practice, if a company breaches these established norms—for example, in human rights or labor practices—investors may decide not to invest in it. This approach is about aligning portfolios with widely accepted ethical and legal expectations, not about chasing high ESG scores or focusing solely on growth or carbon intensity. The other ideas describe different approaches. One suggests chasing perfect ESG scores, which isn’t a practical or normative rule; another focuses on high carbon intensity without regard to governance, which misses the normative criteria; and prioritizing high-growth sectors is about potential return, not about meeting international norms.

Norms-based screening looks at whether a company adheres to internationally recognized norms and standards, and then excludes those that don’t. It uses benchmarks like the UN Global Compact principles or the Universal Declaration of Human Rights to decide what to avoid. In practice, if a company breaches these established norms—for example, in human rights or labor practices—investors may decide not to invest in it. This approach is about aligning portfolios with widely accepted ethical and legal expectations, not about chasing high ESG scores or focusing solely on growth or carbon intensity.

The other ideas describe different approaches. One suggests chasing perfect ESG scores, which isn’t a practical or normative rule; another focuses on high carbon intensity without regard to governance, which misses the normative criteria; and prioritizing high-growth sectors is about potential return, not about meeting international norms.