Foundations of ESG Investing – Part 4: Integrating ESG into Factor Strategies and Active Portfolios

categories: Indexes, ESG Products & Services, Americas, EMEAI, Investing (Investment Management), Portfolio Construction and Optimization, Responsible Investing, Asia Pacific, Asset Owners, Equities, Fixed Income, Research Paper, MELAS Dimitris, NAGY Zoltan, Asset Managers (Quant or Fundamental), NISHIKAWA Laura, LEE Linda-Eling, GIESE Guido, general

How can ESG characteristics be integrated consistently across factor-based and active equity allocations? In Part 4 of the Foundations of ESG Investing paper, we discuss two approaches to applying ESG ratings to factor-based allocations – a one-step and a two-step approach – asking which has done a better job at combining the underlying strategy with ESG while maintaining exposure to target factors. We then investigate overlaying ESG ratings and ESG momentum on the historical holdings of nearly 1,200 actively managed global equity funds. What would have been the impact on their risk and return?

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Research_Insight_Foundations_of_ESG_Investing_Part 4.pdf