Integration of ESG in Asset Allocation

29 Pages Posted: 5 Nov 2019 Last revised: 11 Nov 2019

See all articles by Benjamin Bruder

Benjamin Bruder

Lyxor Asset Management

Yazid Cheikh

Ecole Polytechnique, Palaiseau, Student

Florent Deixonne

Lyxor Asset Management

Ban Zheng

Ecole Polytechnique; HSBC Global Asset Management

Date Written: October 25, 2019


In this paper, we try to identify the relationship between the ESG scores and stocks' performance and risk measures. Using the ESG database of MSCI, we split the global investment universe into three regions: Europe, North America and Asia-Pacific. The investment universe of each region is defined by the components of the corresponding MSCI index which is rebalanced every month. A simple statistical check allows us to verify the integrity of the database. For the portfolio construction of E/S/G/ESG factors, the ESG scores are normalized for all stocks in the same sector such that the sectorial bias is minimized. We find that Governance score can significantly improve the portfolio's performance both in Europe and North America, meanwhile, the market of Asia-Pacific is not sensitive to E/S/G/ESG scores. It is interesting to remark that the Governance factor in Europe can be explained by traditional Quality factor, meaning that there is some equivalence between Governance score and Quality indicators. In terms of risk measures, we observe that stocks with higher Governance and Environmental scores are exposed to lower risks measured by maximum drawdown or volatility, for Europe and North America. In Asia-Pacific, it is difficult to make any conclusion on the relationship between risk measures and ESG scores.

Keywords: Socially Responsible Investment, ESG, Factor Investing

JEL Classification: C50, C60, G11

Suggested Citation

Bruder, Benjamin and Cheikh, Yazid and Deixonne, Florent and Zheng, Ban, Integration of ESG in Asset Allocation (October 25, 2019). Available at SSRN: or

Benjamin Bruder

Lyxor Asset Management ( email )


Yazid Cheikh

Ecole Polytechnique, Palaiseau, Student ( email )


Florent Deixonne

Lyxor Asset Management ( email )

17 Cours Valmy

Ban Zheng (Contact Author)

Ecole Polytechnique ( email )

Route de Saclay
Palaiseau, 91 91128

HSBC Global Asset Management ( email )

110, esplanade du Général de Gaulle
Paris La Défense, 92400

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