Skip to main content
PGIM Quantitative Solutions LogoPGIM Quantitative Solutions Logo
  • Learn About Us
    • Our Solutions
    • Our History
    • The Team
    • Diversity, Equity & Inclusion
    • Contact Us
  • All Insights
    • ESG
    • Market Views
    • OUTcomes Series
  • ESG Overview
    • ESG Insights
    • ESG Policy
    • Stewardship and Governance
  • Overview of Solutions
    • Quantitative Equity
    • Multi Asset
    • PGIM Wadhwani
    • PGIM DC Solutions
  • Client Log In
  • Careers
Banner image
Outcomes

ESG At A Crossroads: Time For A New Risk DirectionESGAtACrossroads:TimeForANewRiskDirection

By Patrick McDonough — Jul 19, 2022

10 mins

Share
  • Mail
  • LinkedIn
  • Twitter
  • Copy URL
Read More

Share

Why meaningful ESG investment results require risk management and transparency

ESG investing is at a crossroads as regulators are demanding more transparency just as investors face inflation’s rising threat to portfolio performance. One of the key reasons that ESG investing faces such scrutiny from regulators is the historical tendency of some asset managers to repackage existing strategies by adding a sprinkling of “good” companies to create a “new-ish” product that’s been labeled ESG-friendly – or worse, some firms don’t bother to make any changes at all, call it an ESG strategy anyway, and invite regulatory investigation. I think that, publicly at least, everyone would agree ESG investing should be much more than that. To be effective for ESG-aware clients, ESG investing will need to make a fundamental change to the way portfolios are designed to include comprehensive risk control with targeted ESG directives and complete transparency.

By definition, ESG investing introduces risk into portfolios as it deviates from the original investment mandate, and therefore, from the originally selected benchmark. But risk is not always a bad thing. Let’s take a look at the weight of the Energy sector (a “bad” ESG investment by anyone’s definition) within three major equity universes going back to 2008, when the weight of the sector spiked. Since that time, energy’s representation in each of the indexes has fallen sharply. Coincidently, ESG assets have grown rapidly during this period, rising well over 1000% between 2015 and today. And as assets rose, ESG exposure became virtually “free,” as not owning the worst ESG names proved to be a winning result as those constituents fell in index weighting.

Read More
  • By Patrick McDonoughPortfolio Manager, PGIM Quantitative Solutions
  • About Us

    • Overview
    • Our History
    • The Team
    • Inclusion & Diversity
    • Contact Us
    • Careers
  • Insights

    • All Insights
    • ESG
    • Market Views
    • OUTcomes Series
  • ESG

    • Overview
    • Insights
    • ESG Policy
    • Stewardship and Governance
  • Solutions

    • Overview
    • Quantitative Equity
    • Multi Asset
    • PGIM Wadhwani
    • PGIM DC Solutions
PGIM Quantitative Solutions Logo
  • Terms & Conditions
  • Privacy Center
  • Accessibility Help
  • Cookie Preference Center

For Professional Investors only. All investments involve risk, including the possible loss of capital.

The content and materials presented here are for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation in respect of any products or services to any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. PGIM Quantitative Solutions LLC (PGIM Quantitative Solutions or PGIM Quant), formerly known as QMA LLC, is an SEC-registered investment adviser and a wholly-owned subsidiary of PGIM, Inc. (PGIM), the principal asset management business of Prudential Financial, Inc. (PFI) of the United States of America. Registration with the SEC does not imply a certain level of skill or training. PFI of the United States is not affiliated in any manner with Prudential plc incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. 

In the United Kingdom, information is issued by PGIM Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square, London, WC2N 5HR. PGIM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom (Firm Reference Number 193418). In the European Economic Area (“EEA”), information is issued by PGIM Netherlands B.V. with registered office: Gustav Mahlerlaan 1212, 1081 LA Amsterdam, The Netherlands. PGIM Netherlands B.V. is authorised by the Autoriteit Financiële Markten (“AFM”) in the Netherlands (Registration number 15003620) and operating on the basis of a European passport. In certain EEA countries, information is, where permitted, presented by PGIM Limited in reliance of provisions, exemptions or licenses available to PGIM Limited under temporary permission arrangements following the exit of the United Kingdom from the European Union. 

These materials are issued by PGIM Limited and/or PGIM Netherlands B.V. to persons who are professional clients as defined under the rules of the FCA and/or to persons who are professional clients as defined in the relevant local implementation of Directive 2014/65/EU (MiFID II). PGIM Quantitative Solutions, PGIM Limited and/or PGIM Netherlands B.V. are indirect, wholly-owned subsidiaries of PGIM. These materials are not intended for distribution to, or use by, any person in any jurisdiction where such distribution would be contrary to local or international law or regulation.

In Japan, investment management services are made available by PGIM Japan, Co. Ltd., ("PGIM Japan"), a registered Financial Instruments Business Operator with the Financial Services Agency of Japan. In Hong Kong, information is provided by PGIM (Hong Kong) Limited, a regulated entity with the Securities & Futures Commission in Hong Kong to professional investors as defined in Section 1 of Part 1 of Schedule 1 (paragraph (a) to (i) of the Securities and Futures Ordinance (Cap.571). In Singapore, information is issued by PGIM (Singapore) Pte. Ltd. (“PGIM Singapore”), a Singapore investment manager that is licensed as a capital markets service license holder by the Monetary Authority of Singapore and an exempt financial adviser. These materials are issued by PGIM Singapore for the general information of “institutional investors” pursuant to Section 304 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”) and “accredited investors” and other relevant persons in accordance with the conditions specified in Sections 305 of the SFA. In South Korea, information is issued by PGIM Quantitative Solutions, which is licensed to provide discretionary investment management services directly to South Korean qualified institutional investors on a cross-border basis.

PGIM, PGIM Quantitative Solutions logo and the Rock design are service marks of PFI and its related entities, registered in many jurisdictions worldwide.

© 2023 PGIM Quantitative Solutions. All Rights Reserved.
 

You are viewing this page in preview mode.

Edit Page