Constructing ESG Portfolios
with Non-ESG Data

Targeting portfolio-level ESG outcomes may not require the extensive individual-security research that has become the norm for most sustainable investing.

Our latest paper presents:

  1. A practical process for capturing ESG characteristics by using statistical analysis of ESG ratings to identify persistent and dominant systematic factors that can then be applied to a portfolio in non-ESG terms.
  2. A simple proof of concept that analyzes country and sector weights based on an index’s holdings, restricted to stocks with above-median ESG scores, to construct proxy portfolios using all stocks in the index, boosting weights for sectors and countries that were overweighted in the ESG-restricted portfolios.
  3. Resulting proxies that consistently captured the desired ESG characteristics simply by adjusting portfolio-level exposures rather than individual stock considerations, offering a complementary model to bottom-up, stock-by-stock ESG analysis.

The result? A reliable, repeatable process that can construct portfolios with favorable ESG characteristics without a direct reliance on stock-level ESG scores.

Constructing ESG Portfolios with Non-ESG Data

 

ESG Made Easier