Thematic Indexing, Meet Smart Beta! Merging ESG into Factor Portfolios

Posted: 22 May 2019

See all articles by Jennifer Bender

Jennifer Bender

State Street Global Advisors

Xiaole Sun

State Street Global Advisors

Taie Wang

State Street Global Advisors

Date Written: October 18, 2017

Abstract

Many investors are starting to explore ways to integrate environmental, social and governance (ESG) considerations into their portfolios. Factor portfolios and indices which integrate ESG allow investors to capture both the long-term durable factor premia while allowing them to invest in companies with attractive ESG attributes. Traditional factors and ESG both have strong investment rationale for investors with long horizons. But how should blended ESG-factor portfolios be constructed? This paper discusses several ways in which to integrate ESG in factor portfolios. We show that the choice of which approach depends on the investor’s investment rationale behind integrating ESG, desired exposure, performance expectations, and preference for conceptual consistency.

Keywords: ESG, Smart Beta, Thematic Investing, Portfolio Integration

Suggested Citation

Bender, Jennifer and Sun, Xiaole and Wang, Taie, Thematic Indexing, Meet Smart Beta! Merging ESG into Factor Portfolios (October 18, 2017). https://doi.org/10.3905/jii.2017.8.3.089. Available at SSRN: https://ssrn.com/abstract=3080355 or http://dx.doi.org/10.2139/ssrn.3080355

Jennifer Bender (Contact Author)

State Street Global Advisors ( email )

1 Lincoln Street
28th Floor
Boston, MA 02111
United States

Xiaole Sun

State Street Global Advisors ( email )

United States

Taie Wang

State Street Global Advisors ( email )

68/F, Two International Finance Centre
8 Finance Street, Central
Hong Kong, Hong Kong
Hong Kong

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,411
PlumX Metrics