Listen to our latest Intech® Equity Market Observations Watch Now

Please Choose Your Country

Welcome. This website is intended solely for the use of institutional investors, consultants and other professionally recognized financial intermediaries in specific countries. Intech Investment Management LLC (“Intech”), is an investment adviser registered with the United States Securities & Exchange Commission. Intech is not permitted to offer products and services in all countries. It is the responsibility of prospective investors to inform themselves of and to observe all applicable laws and regulations of any relevant jurisdictions, including the legal requirements and tax consequences within the countries of their citizenship, residence, domicile and place of business with respect to the acquisition, holding or disposal of shares or securities, and any foreign exchange restrictions that may be relevant thereto. The products and services referred to in this website are not offered to any person or entity in any jurisdiction where the advertisement, offer or sale of such products and services is restricted or prohibited by law or regulation or where we would be subject to any registration or licensing requirement not currently held by Intech or our affiliates. If Intech does not offer a website for your country, please visit

For U.S. and Canadian Institutional Investors Only

Not your country? Please choose your country here.

Information contained in this area of the Website is published solely for general informative purposes and intended only for United States institutional investors, consultants, registered investment advisers (RIAs), financial advisers (FAs), and other financial intermediaries who are knowledgeable and experienced in the financial services market and investment products. If you are a retail or individual investor then please leave this website. The information is not authorized for use in a jurisdiction where distribution is not authorized and is not intended for distribution to individual retail clients. If you choose to access this Website from locations outside of the United States, you do so at your own initiative and risk, and are responsible for compliance with all applicable laws.

U.S. Institutional Investors: By accessing this site, you confirm that you are an U.S. institutional investor as set forth in one of the categories described above, agree not to forward or make the contents of this site available to any person who is not an U.S. institutional investor, and agree to be subject to terms of use.

Canadian Institutional Investors: By accessing this site you confirm that you are a “permitted client” as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations of the Canadian Securities Administrators, you agree not to forward or make the contents of this site available to any person who is not a “permitted client”, and you agree to be subject to terms of use. The information on this Website is for informational purposes only and does not constitute (i) an offer for products or services or (ii) the provision of investment advice of any kind, tailored or otherwise. The information on this Website should also not be construed as an offer to sell or a solicitation of an offer to buy to any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. Intech Investment Management LLC (“Intech”) does not have any funds that offer securities under a simplified prospectus for general offer or sale within Canada. No securities regulatory authority in Canada has reviewed or in any way passed upon this website or the merits of any investment available, and any representation to the contrary is an offense. Intech is registered with the United States Securities & Exchange Commission under the Investment Advisers Act of 1940. Intech is a subsidiary of Janus Henderson Group plc, and is affiliated with its subsidiaries and affiliates.

Decline - Redirect me to

As more investors embrace the importance of incorporating environmental, social, and governance (ESG) considerations into their portfolios, there has been growing interest in managing the potential performance trade-offs that can often be associated with capturing enhanced ESG characteristics.

Investors tend to favor one of two typical approaches to implementing ESG investment strategies: stock-driven and portfolio-driven. Many investors continue to rely on stock-driven ESG exposures when integrating ESG considerations into portfolio construction; however, focusing on portfolio-level exposures appears to be a more efficient approach.


Stock-driven exposures

Portfolio-driven exposures

This approach limits the investment universe relative to a benchmark based on specific stock-level ESG ratings. It may not use overall portfolio-level ESG constraints or exposures in the process; instead, it relies on excluding companies with the least favorable ESG ratings or overweighting those with the most favorable ratings as a way to meet an investor’s sustainability objectives.

This approach may also incorporate stock-level ESG ratings, but it places emphasis on targeting ESG outcomes at the portfolio level, allowing for a larger initial investment universe. The portfolio-driven approach boosts portfolio-level ESG characteristics above the benchmark, commensurate with investor objectives, while adapting the portfolio to manage the resulting impact to performance and risk.


Stock-Driven ESG Approaches Invite Challenges

Focusing on stock-level ESG exposures may intuitively seem like the most straightforward way to improve a portfolio’s ESG scores. Yet, our research shows that a stock-driven approach alone can come with steep trade-offs that may significantly limit a portfolio in several ways – especially when the approach relies on excluding a material number of low-rated stocks.

We find three key challenges with stock-driven ESG implementations:

  1. Excluding stocks reduces the investment universe, which tends to restrict overall return potential. Fewer names to choose from generally translates into fewer ways to add alpha.
  2. Working with fewer names reduces diversification potential, and increases overall risk relative to the portfolio’s benchmark.
  3. Stock-exclusion approaches may not consistently maintain a portfolio’s ESG profile. This potentially introduces a level of unintended exposure variability, the degree of which may grow as the number of exclusions increase. For example, the consistency of an ESG boost resulting only from stock exclusions may be lower and less consistent than expected, as the improvement of the desired ESG metrics relative to the benchmark is unmanaged and can be quite uneven.

Instead, a more practical approach appears to begin by defining the investor’s ESG investment goals and then focusing on how best to integrate the corresponding constraints based on the overall desired portfolio attributes. In other words, begin with the end in mind. We believe this method offers much greater portfolio control and helps better manage the trade-offs between ESG and risk-reward outcomes to pursue stronger outcomes for both.

Targeting ESG Outcomes at the Portfolio-Level

In our recent research paper, Constructing ESG Portfolios with Non-ESG Data, we highlighted a method to target portfolio-level ESG outcomes with greater efficiency, scale and dependability without directly relying on stock-specific ESG data. We merely adjusted portfolio-level risk exposures, such as sector and country weights. You can see the results for the overall ESG score presented in that research below (Figure 1). We also presented individual environment, social, governance and carbon proxies in the original paper.

“...this method offers much greater portfolio control and helps better manage the trade-offs between ESG and risk-reward outcomes to pursue stronger outcomes for both.”

Although this was a very simple experiment, it offered an important proof of concept: Investors may achieve meaningful and consistent ESG portfolio tilts over benchmark scores by adjusting portfolio-level exposures that capture dominant and persistent characteristics inherent in traditional ESG evaluations.

Fig 1 Boosting ESG Scores by Adjusting Only Portfolio-Level Exposures-1

Need the Evidence?

We’ve written a research paper on how a more sophisticated application of a portfolio-driven ESG integration might capture ESG outcomes similar to those produced by a stock-driven exposure approach. Our goal was to understand how your ESG implementation choice – portfolio-driven exposures versus stock-driven exposures – could affect an active, non-ESG strategy with a history of generating alpha. Download it here.

Boost ESG Scores and Preserve Risk-Reward Results?  Find Your Win-Win ESG Investing Proposition Learn More



The views presented are for information purposes only and should not be used or construed as investment, legal or tax advice or as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. Nor do they purport to address the financial objectives or specific investment needs of any individual reader, investor, or organization. The views are subject to change at any time based upon market or other conditions, are current as of the date indicated, and may be superseded by subsequent market events or other conditions.

Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value. As with all investments, there are inherent risks that need to be considered. The hypothetical portfolios shown are for illustrative purposes and do not represent any particular investment. Hypothetical portfolios are not real and have many inherent limitations. They do not reflect the results or risks associated with actual trading or the actual results of any portfolio, and have been prepared with the benefit of hindsight. Therefore, there is no guarantee that an actual portfolio would have achieved the results shown. In fact, there will be differences between hypothetical and actual results. No investor should assume that future performance will be profitable, or equal to the results shown.

References to third party names such as MSCI ESG ratings do not constitute a sponsorship or endorsement by such company nor does it accept any liability for damage arising from the use of the information, data, or opinions contained herein. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report has not been approved, reviewed, or produced by MSCI.

Intech is the source of data unless otherwise indicated, and has reasonable belief to rely on information and data sourced from third parties.