The practical considerations of ESG in multi-asset portfolios

In our last paper 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:

  1. Establish an overarching ESG philosophy that applies across
    the total portfolio.
  2. Understand the effect on the total portfolio of using ESG
    asset components or removing asset classes that cannot
    incorporate ESG.
  3. Decide whether ESG should be applied to asset allocation
  4. Decide how ESG will be applied to the component asset classes.
  5. 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.

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.