Delivering outcomes by accessing ESG

We believe that incorporating ESG insights can improve investment outcomes. Our Multi-Asset Strategies & Solutions group seeks to deliver better outcomes by refining index exposures, incorporating sustainability into factor definitions, and by using sustainability data to seek alpha.

Indexes

We use indexes in portfolio construction to access broad market exposures in a cost-efficient manner. We can realize those benefits and simultaneously seek to increase resilience by refining indexes to eliminate certain companies or sectors associated with negative ESG characteristics, or by tilting towards higher ESG scores. The potential for improved resilience was displayed in the first quarter of 2020, and other recent downturns as shown below.

Percentage of sustainable indices that have outperformed during downturns

Percentage of sustainable indices that have outperformed during downturns

Source: BlackRock, December 2020. For illustrative purposes only. Analysis based on a set of 32 globally-representative, widely analysed sustainable indices and their non-sustainable counterparts.

Factors

Factors target broad, persistent drivers of return across and within asset classes. While ESG itself is not a factor, the frontier of factor research is to incorporate ESG data into the factor definitions themselves. For example, we have used machine learning techniques to quantify corporate culture as part of our quality measures.

Alpha

Alpha is about seeking idiosyncratic returns that are independent of index and factor exposures. This typically involves targeting unique and harder to access insights – including those related to ESG. In other words, incorporating sustainability data is a way to broaden the total amount of information we consider and seek to identify previously unpriced risk and opportunity. We do this through both systematic and fundamental approaches.

Download our Multi-Asset Strategies & Solutions group’s report
Delivering outcomes by accessing ESG through multiple drivers of return
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Yasmin Meissner, CFA
Co-Head of Sustainable Investing, Multi-Asset Strategies & Solutions
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Katharina Schwaiger, PhD
Co-Head of Sustainable Investing, Multi-Asset Strategies & Solutions
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Lisa O’Connor
Global Head, Model Portfolio Solutions
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Michael Pensky, CFA
Portfolio Manager, Global Tactical Asset Allocation
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Conan McKenzie, CFA
Portfolio Manager, ESG Multi-Asset Fund
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Meghan Colarusso, CFA
Strategist, Multi-Asset Strategies & Solutions
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