The portfolio management team of the impact investments systematically include an assessment of ESG risks in each of the companies they invest in. They do a thorough analysis and use their ESG questionnaire and tool in the process to assess this.
The SES team explores the possibilities for ESG integration in multifactor models. Candidate ESG factors are assessed based on their relationships to other factors in the model, their potential to add value to the investment process, and their potential to improve the ESG profile of the portfolio on top of its financial characteristics. Depending on the outcome of such an evaluation ESG factors are considered for addition to the model.
Also, we adjust the Alternative Equity benchmark by removing the same CO2-intensive companies within the most polluting sectors: utilities, energy and materials . Using the multi-factor construct supplied by our benchmark provider, the desired exposure by factor is achieved for the remaining universe in the index. Implementation is based on a CO2 budget: the portfolio manager is given a maximum CO2 intensity limit that is to be met by the portfolio.