By Dimitris Melas, Global Head of Equity Research, MSCI
Over the past decade, many long-term institutional investors have incorporated Environmental, Social and Governance ((ESG)) considerations into their portfolios, by creating segregated ESG mandates or by incorporating ESG criteria across the entire portfolio.
Adding ESG criteria into long-term portfolios raises some important questions:
What is the impact of ESG on portfolio performance and characteristics? How does it alter the risk profile and the factor exposures of portfolios? How does it affect investors' ability to pursue their investment strategy?
To answer these questions, we first analyzed the relationship between ESG characteristics and traditional risk factors. We found that ESG scores had positive correlations with size, quality and low volatility. Then we assessed the impact of ESG integration on different investment strategies through a consistent portfolio construction framework. Our results show that integrating ESG criteria into passive strategies generally improved risk-adjusted performance over… Read More …
