Integrating environmental, social, and governance (ESG) factors into our investment process without compromising risk or return objectives is a pillar of our holistic sustainability approach. Every Intech strategy incorporates ESG factors for risk management purposes, regardless of whether a strategy has an explicit sustainable mandate.
Our clients expect us to understand the trade-off between generating returns, and the sources of risk associated with those returns. Indeed, it’s our obligation. We’ve found that ESG characteristics can introduce material systematic risks to portfolios, so we integrated ESG exposures into our investment process and developed proprietary ESG factors and constraints that help us manage the risks induced by ESG-related issues.
How We Integrate ESG
Access to high-quality data with a long time-series is essential for a quantitative manager. We fulfill this prerequisite for ESG data by combining widely-accepted, third-party ESG ratings that emphasize stock-specific impacts with proprietary statistical analysis that reveals related attributes that are broad, stable, and historically persistent. This technique allows us to test longer-term simulations beyond the availability of third-party ESG data, enabling the process to accommodate ESG considerations by combining proprietary and third-party ratings consistent with other portfolio risk constraints.
ESG Risk Dimensions
Intech evaluates ESG considerations across five risk factors: environmental, social, governance, carbon, and in aggregate.