The practical considerations of ESG in multi-asset portfolios
Implementing an ESG policy across multiple asset classes is complex and requires thought to be applied to all parts of the process. In this paper, we share some of the lessons we have learned in the process of creating ESG multi-asset portfolios.
We believe that there are five practical issues asset owners need to address when implementing environmental, social and
governance (ESG) considerations across assetsIn our last paper¹ we established how asset owners can include a sustainability budget alongside their risk and governance budgets. How to implement this at a total portfolio level is the next challenge that asset owners face. We believe that there are five practical issues asset owners need to address when implementing environmental, social and governance (ESG) considerations across assets:
- Establish an overarching ESG philosophy that applies across the total portfolio
- Understand the effect on the total portfolio of using ESG asset components or removing asset classes that cannot incorporate ESG
- Decide whether ESG should be applied to asset allocation decisions
- Decide how ESG will be applied to the component asset classes.
- Figure out how to evaluate the impact of ESG consistently across the portfolio
In this paper we consider all of these issues, providing our views and approach to help asset owners with the same dilemmas we have faced when developing ESG multi-asset portfolios.
¹ Managing sustainability from a total portfolio perspective, Schroders, March 2019
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