ESG factors influence portfolio construction decisions, such as industry and sector allocation. For example, climate risk influences overall energy sector allocation, the type of energy companies selected, as well as the relative weightings.
Our portfolio construction process results in a broadly diversified portfolio. When determining position weights, the portfolio management team considers the quality characteristics of a company, including ESG factors, as well as diversification and risk. ESG integration is both exclusionary (ruling out companies with significant risks) and inclusionary (identifying companies with superior performance). Hence, position weights reflect a company's ESG profile, among other factors.
Furthermore, specific ESG priorities of Boston Trust Walden clients will affect portfolio construction decisions. For example, fossil fuel free portfolios often require reweighting and company substitution in order to achieve financial objectives.