The quant road to ESG integration - DWS

Applying a quantitative approach to ESG integration offers big benefits to clients. It allows for an in-depth understanding of secondary exposures that come with applying ESG tilts to portfolios.

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Environmental, social and governance-based investing has surged in popularity in the past decade. A common approach is to apply an ESG screen to existing holdings, or to integrate ESG criteria directly into the analysis and selection of stocks. The objective is usually to improve the ESG-rating of a portfolio overall.

While this is a worthy approach, often investors have little understanding of the impact of introducing ESG criteria on their investment opportunity set, or how the risk and return characteristics of their portfolio are affected. Style or factor tilts can emerge without them knowing. Quantitative techniques can be used to evaluate and manage these effects to enable investors to achieve their sustainability and financial goals.

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