ESG in Factors

The Journal of Impact and ESG Investing, Fall 2020, 1 (1) 26-45; DOI: https://doi.org/10.3905/jesg.2020.1.1.026

Posted: 10 Feb 2020

See all articles by Ying Chan

Ying Chan

BlackRock, Inc

Ked Hogan

BlackRock, Inc

Katharina Schwaiger

BlackRock, Inc

Andrew Ang

BlackRock, Inc

Date Written: January 19, 2020

Abstract

Environmental, Social, and Governance (ESG) signals are an important part of factor-based investing strategies as they can stem from the same economic rationales as general factor premiums. Because factors are broad and diversified, building portfolios by jointly optimizing factor exposures with ESG and carbon outcomes results in similar historical performance as benchmark factor portfolios which do not include those considerations. We show how sustainable signals, which often involve alternative data, can be integrated in the definitions of factors themselves: we offer two examples on green intangible value and corporate culture quality which enhance traditional financial value and quality factors, respectively.

Keywords: factors, factor investing, sustainable investing, ESG, CSR, socially responsible investing, corporate culture, intangible value, green patents

JEL Classification: G12, G34, M14, Q01, Q5, C45

Suggested Citation

Chan, Ying and Hogan, Ked and Schwaiger, Katharina and Ang, Andrew, ESG in Factors (January 19, 2020). The Journal of Impact and ESG Investing, Fall 2020, 1 (1) 26-45; DOI: https://doi.org/10.3905/jesg.2020.1.1.026, Available at SSRN: https://ssrn.com/abstract=3522354 or http://dx.doi.org/10.2139/ssrn.3522354

Ying Chan

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Ked Hogan

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Katharina Schwaiger (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Andrew Ang

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

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