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Foundations of ESG Investing – Part 2: Integrating ESG into Benchmarks

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

An ad hoc approach to ESG integration can lead to suboptimal results. Instead, a top-down approach can afford greater consistency throughout the entire portfolio. So can ESG indexes be used as benchmarks, both for the total portfolio and individual allocations? We test whether two such ESG indexes can be used for these purposes, using the MSCI ESG Leaders Index — a "best-in-class" approach that selects index constituents with strong ESG ratings — and the MSCI ESG Universal Index — a re-weighting methodology that relies on ESG ratings and changes in ESG ratings.

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Research_Insight_Foundations_of_ESG_Investing_Part 2.pdf