THINKING SUSTAINABLY

THE CHALLENGE

Will incorporating ESG into my investment process impact performance?

Investors are increasingly demanding that their investments align with their own values and make a positive contribution to society. This is bringing sustainable investments to the forefront of portfolio construction and establishing sustainability as the new normal in many client portfolios.

Sustainable investing has moved from the peripheral to the core of wealth management investment propositions. This ‘new normal’ is not only about the ability to prove that you can generate excess returns above benchmark, but also about demonstrating a valid sustainable proposition if managers are to compete effectively for future investments.

THE ACTION

Increased clarity around sustainable performance return drivers, an expanded product set and longer track records are empowering investors to start implementing sustainable decisions into their investment process, while keeping aligned to their strategic asset allocation and investment goals.

Many wealth managers are partnering with BlackRock to gain a better understanding of the ESG metrics on their portfolio, and to redesign portfolios where the incorporation of ‘values’ does not necessarily mean giving up value.

Carbon Emissions Intensity (Metric tonnes CO2/Sales)

Carbon Emissions Intensity (Metric tonnes CO2/Sales)

Source: BlackRock, MSCI ESG Research as at May 2020.
For illustrative purpose only.

Case studies are for illustrative purposes only; they are not meant as a guarantee of any future results or experience, and should not be interpreted as advice or a recommendation.

THE OUTCOME

In this example, transitioning from market-cap weighted exposures to sustainable benchmarks of equivalent exposures resulted in a 60% reduction of carbon emissions, which is equivalent to 23 cars driven each year.

Overall portfolio risk also decreased, which could have been partly driven by the increased exposure to companies that are adopting stronger working practices, and therefore exhibiting greater quality factor characteristics.

WHY INDEXING?

The rules-based approach to defining the universe and standards for ESG characteristics within indexing enables investors to incorporate sustainability criteria in a transparent and low-cost manner while remaining aligned to their broader regional and sector investment views.

Risk: This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This is for illustrative and informational purposes and is subject to change. It has not been approved by any regulatory authority or securities regulator.

The environmental, social and governance (“ESG”) considerations discussed herein may affect an investment team’s decision to invest in certain companies or industries from time to time. Results may differ from portfolios that do not apply similar ESG considerations to their investment process.

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