A Simple Guide to Drafting Your ESG Manual: Crafting an Effective Investment Restriction and Exclusions Section (Part 3)

March 2024

In our first articles of this series, we’ve covered the first sections that should be included in your ESG Manual: ESG Definitions, What ESG Means For Us in this article , and Responsible Investment Strategy in this article . If you have not read the first articles, we invite you to do so.


As investors increasingly integrate environmental, social, and governance (ESG) considerations into their decision-making, companies and startups are recognizing the importance of aligning their investment strategies with these principles. The investment restriction and exclusions section of your ESG manual is a critical component that outlines your commitment to responsible investing. In this article, we will guide you through the process of drafting a robust investment restriction and exclusions section that reflects your firm’s dedication to ESG values. By adhering to these best practices, you can communicate your ESG stance effectively to investors, employees, and other stakeholders.


Restrictions and Exclusions List

Defining Investment Restrictions and Exclusions

The investment restriction and exclusions section outlines the criteria that guide your investment decisions. It identifies sectors, industries, and activities that your firm will refrain from investing in due to their adverse ESG impacts. When drafting this section, consider the following questions:


A clear and well-structured section enhances the readability and transparency of your manual. Consider organizing it based on the following categories:


Excluded Sectors and Industries:

List industries or sectors that are inconsistent with your ESG values. This could include tobacco, fossil fuels, arms manufacturing, and others known for significant negative impacts.


Controversial Practices:

Identify specific practices that your firm will not support due to their negative ESG implications. This might encompass child labor, human rights violations, environmental degradation, and more.


Ethical Standards:

Outline the ethical principles that underpin your investment decisions. This could include aligning with international standards such as the UN Global Compact or following specific ethical guidelines.


Questions to Ask:

  • What are the key ESG issues that align with our firm’s values and mission?
  • Which industries or sectors are known for significant ESG risks or controversies?
  • How will the chosen restrictions and exclusions align with our firm’s overall business strategy?
  • What is the scope of our investment restrictions – geographic, industry, specific practices?
  • How will we communicate and enforce these restrictions to ensure consistency?


Example from Robeco


Example from Kibo Ventures

Kibo Ventures makes an initial assessment taking into account the exclusions set by its principles, values and the risk they represent for its investors and stakeholders.

These exclusions have been defined in terms of sector, business and behaviour.

They are as follows:

  • Production, marketing and financing activities that are considered illegal.
  • Activities related to the production, sale or financing of tobacco and distilled spirits and related products.
  • Companies whose purpose is the production, trade or financing of controversial arms. Not applicable in the situation where such activity is integrated or complementary to European Union policies.
  • Companies that finance gambling activities, gambling, casinos, pornography or related businesses both physically and online including the study or development of data tools or programs.
  • Companies that fund research, development and practical application with respect to life sciences on the assumption of:
    • Human cloning for research, reproductive or therapeutic purposes.
    • Genetically modified organisms.
    • Activities that violate human rights.
    • Companies whose culture encourages or raises suspicions of corruption, money laundering practices or other similar offences.


From time to time, activities, industries and behaviors contrary to Kibo Ventures’ values or those of its key stakeholders will be reviewed and analyzed, and emerging controversial issues may be added to this list of exclusions.

Key Components and Checklists

Excluded Sectors and Industries Checklist:

  • Research: Conduct thorough research to identify sectors and industries with high ESG risks and controversies.
  • Alignment: Ensure that your exclusions align with your firm’s mission, values, and ESG priorities.
  • Consistency: Clearly define the criteria that determine whether an industry or sector should be excluded.
  • Review: Regularly review and update your list of excluded sectors to reflect evolving ESG concerns.


Controversial Practices Checklist:

  • Research: Identify specific practices that have negative ESG implications and align them with your firm’s values.
  • Clear criteria: Establish a clear set of criteria for determining what practices will be considered controversial.
  • Engagement: Consider engagement opportunities with companies in your portfolio to encourage positive change.
  • Reporting: Describe how you’ll communicate your stance on controversial practices to stakeholders and investors.


Ethical Standards Checklist:

  • Reference frameworks: Identify recognized international standards or ethical frameworks that align with your firm’s values.
  • Implementation: Explain how you plan to implement these ethical standards in your investment decision-making process.
  • Transparency: Describe how you’ll transparently communicate your commitment to these standards to stakeholders.
  • Accountability: Detail the responsibilities of different stakeholders in upholding these ethical standards.

Recommended Resources

When crafting your investment restriction and exclusions section, leverage these resources to strengthen your approach:


Demonstrating Commitment

An effective investment restriction and exclusions section not only lists the sectors and practices you avoid but also highlights your commitment to responsible investing. Use qualitative explanations and quantitative metrics when possible, to provide context and demonstrate the impact of your investment strategy.

In the landscape of responsible investing, a well-crafted investment restriction and exclusions section is significant. By addressing key questions and structuring your section thoughtfully, you can communicate your commitment to investors, employees, and other stakeholders effectively.


By following these guidelines and utilizing recommended resources, you will not only strengthen your investment strategy but also contribute to a more sustainable and equitable future. At Cap Inclusive, we believe in the importance of aligning your commitments with actions, and reflecting your principles in your investment thesis. Embrace this opportunity to make a positive impact through your investment choices. Out Partner Cap Inclusive can help you seize this opportunity to make a positive impact through your investment choices.



Discover other articles from this guide :




This content series is aimed at guiding investors in drafting their ESG Manual. While an ESG Policy is a legal document that should be revised by your legal team, an ESG Manual sets the intentions for how a Firm will align its thesis and values with ESG guiding principles and reporting standards. Lastly, drafting an ESG Manual implies aligning the team and all managing partners around a shared vision and understanding of what ESG means for a Fund that isn’t an Impact Fund.