Our Heart Rating Criteria

Avoidance and Affirmative Screening

Some managers have absolute criteria that automatically trigger exclusion of a holding, while others use a best-in-class approach to select the best company in a given sector rather than omit the entire sector. Other funds proactively seek outstanding leaders in certain ESG areas or sectors. Best-in-class, while important, is not rated as highly as avoidance screening, which is not valued as highly as affirmative screening. Conducting comprehensive analysis to select companies immersed in responsible and sustainable behaviors deserves special recognition, so affirmative screening practices are weighted more heavily in the Rating. ESG screening represents nearly 60% of the total score.

The Rating includes over 40 ESG criteria, categorized by theme: “vices” (alcohol, firearms, gambling and tobacco), environment, employment and corporate governance (including diversity in hiring and management and on boards of directors), product quality and safety, military contracting, animal rights, health issues, and community relations and international human rights.

Shareholder Advocacy

The use of shareholder dialogue and action is one of the most direct and powerful tools for bringing about changes in corporate behavior and policy with regards to the environment, employment practices and corporate governance. Each fund is evaluated for its participation in dialogue with companies, drafting and supporting shareholder resolutions, and involvement in public policy efforts. Advocacy comprises 18% of the total score.

Community Investing

Funds are evaluated on the impact of their cash positions. Allocations to community development financial institutions, municipal bonds in low-income communities and non-insured targeted investments such as microcredit institutions in emerging markets are given high marks, while agency securities and corporate bonds score lower. Community investing comprises 18% of the total score.

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