- Our 2023 update further enhances the ESG in Strategic Asset Allocation framework with a broader index set and seamless flexibility between indices. The greater flexibility and customisation enable investors to harvest the full potential of a SAA tilted to ESG at minimal Tracking Errors (TEs).
- This seamless optimisation across regions, sectors, ESG, and Paris Aligned (PAB) indices can improve ESG outcomes at lower and higher tracking errors. We estimate an average ESG indicator performance improvement of 30% at 25bps tracking error. This increases to 69% relative ESG indicator improvement on average for TEs as high as 200bps. This demonstrates that our updated approach meaningfully improves ESG metrics at lower (25-75bps) and higher (150-250bps) tracking error thresholds.
- The advantages of our ESG optimisation compared to a simple ESG or PAB index replacement strategy are considerable. Our ESG optimisation delivers roughly 1.5x the weighted ESG improvements of a simple ESG or PAB replacement strategy at similar tracking error levels.
- Our case study demonstrates the customisation options to achieve a specific investor’s ESG and financial objectives. The approach is able to deal with client specific (sub) asset class constraints, target volatilities, and customised ESG impact objectives.
- The new features increase the usability in various different investor settings ranging from model portfolios, customised SAAs for Institutional Investors to optimised Reference SAA’s for ESG Mutual Funds.
Change of the weighted relative ESG-improvement in dependency of tracking error in scenario 8 (%)
