ESG investing has evolved considerably over the last two decades, from simple stock-exclusion strategies to more specialized thematic, engagement and impact-oriented solutions. Yet there is no agreed-upon “best approach” to ESG. Investors have very different goals for their ESG portfolios. Going forward, we anticipate increased interest in a core-satellite framework, which would encourage investors to pair complementary ESG strategies to achieve their overall ESG investment goals.
Our goal is to produce a more effective core ESG portfolio where the alpha and tracking error are in line with a standard core portfolio. We developed three quantitative solutions to solve the challenges that have plagued core ESG strategies from the beginning: evaluating ESG attributes, expanding ESG insights and integrating insights into portfolios. These solutions allow us to build core ESG portfolios capable of delivering relatively stable outperformance with an active ESG tilt.