Home > Are sustainably screened portfolios any different?

Are sustainably screened portfolios any different?

Oct 22, 2020

In their paper Factor exposures and diversification: Are sustainably screened portfolios any different?, Arnaud Gougler (University of Fribourg) and Sebastian Utz (University of St. Gallen) analyzed the performance, risk, and diversification characteristics of sustainable investments.

They constructed global screened and best-in-class equity portfolios according to Inrate’s sustainability ratings. The researchers observed that screened portfolios excluding laggards show increased returns and diversification compared to the unscreened counterpart and that the financial performance of portfolios selecting the top 40 percent of stocks is not negatively impacted by the best-in-class approach. They found that the financial performance of sustainably high-rated portfolios is similar to the risk-adjusted market performance in terms of abnormal returns of a five-factor market model. In contrast, low-rated portfolios exhibit negative abnormal returns. Firms with high sustainability ratings show lower idiosyncratic risk and higher exposure toward the high-minus-low and the conservative-minus-aggressive factor.

The results suggest that creating portfolios based on Inrate’s ratings can benefit investors.

Financial market infrastructure provider SIX announced today the launch of a new climate data offering, aimed at supporting investors in reporting and monitoring of climate factors, and in climate-related investment and risk decision making.

The climate data sets, from various data providers in a range of industries, will provide clients with modelled and reported emissions data, covering over 33,000 companies globally, and bringing together multiple data sets on regulatory, historical and forward-looking climate impacts from providers including MSCI and Inrate. SIX also announced that it has recently entered into an agreement with environmental disclosure platform CDP to offer access to its global Greenhouse Gas (GHG) Emissions Dataset across various industries.

According to SIX, the new data sets come as investors increasingly require ESG and climate data to monitor investment decisions and to meet growing regulatory disclosure requirements, including the EU’s SFDR and the U.S.’ upcoming SEC Climate Disclosure Rules.

Martina Macpherson, Head ESG Product Strategy and Management, Financial Information, SIX, said:

“Understanding, measuring and managing climate risk and opportunities, as well as the impact that these can have on investment decisions, is a critical area of focus for market participants and policy makers alike. As more climate risk monitoring and reporting is required globally, the cost of compliance is increasing – both in operations and in terms of specialist ESG resources. SIX works with established providers of basic and specific ESG and climate data in the market.”