Man Group’s CIO for ESG investing told Institutional Investor that responsible investing based only on avoiding certain stocks is a “narrow-minded way of looking at the world” and could cost them returns.

Research conducted by Man Group found that exclusionary screening of companies, the most common approach for ESG investors, may not pay off as well as long-short strategies. “Long bets on companies with, say, strong board diversity may help increase gains” according to Man Group’s Rob Furdak, “while shorting companies lacking diverse leadership may provide even more return.”

Furdak explained that shorting stocks is not a common ESG strategy in part because some asset owners have policies prohibiting it, particularly overseas. He adds, “In the U.S., there’s a little bit more flexibility, a little bit more openness to shorting the bad companies,” to “embrace the dark side of ESG.”

Man Group’s research found that restricted stock portfolios (with the exception of coal) have outperformed the MSCI World Index over the past twenty years. While the performance gap has narrowed over the past five years, Furdak says the data suggest “such exclusion strategies probably have hurt the investment performance of asset allocators.