Integrating responsible investment (‘RI’) into a portfolio is, let’s be honest, not without its challenges. There are certainly grey areas when it comes to RI: there may be differing views as to what constitutes a ‘good’ company. How should a portfolio manager invest if a company is strong on ‘E’, but poor on ‘S’ on the ESG scale? Does engaging with a ‘bad’ company make it investible?
In this paper, Man Group review the various RI integration approaches – exclusion lists, constraint-based and combined (where an
signal is mixed with other factors) – that can be used to incorporate
data into the investment process, and explain why, unlike the Lone Ranger’s silver bullet, there is no direct or effortless solution to this challenge.