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

 

ESG Made Easier
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Past performance cannot guarantee future results. Investing involves risk, including fluctuation in value, the possible loss of principal and total loss of investment. You may get back less than your original investment. There is no assurance that the investment process will consistently lead to successful investing. As with all investments, there are inherent risks that should be addressed.