Environmental, Social and Governance (“ESG”) factors are increasingly important to investors and fiduciaries. Asset owners representing tens of trillions of dollars are now signatories to the UN Principles for Responsible Investment, which include a commitment to incorporate ESG issues into investment processes. Fiduciaries that don’t have a comprehensive approach to ESG in portfolio design risk falling behind the requirements of their investors and other key stakeholders.

For multi-asset investors, the task of integrating ESG considerations into whole-of-fund processes is complicated by the fact that different approaches have emerged across asset classes. Even when a consistent approach to ESG has been adopted across a multi-asset portfolio, too often we see this information housed in spreadsheets or systems separate from the rest of the core portfolio data. This creates a barrier to fully incorporating ESG considerations into portfolio construction. Put simply, if ESG considerations are not integrated into an investor’s core portfolio management and monitoring processes, then they risk becoming an afterthought in those processes.

While there is appetite from investors and asset owners to address ESG considerations as part of the portfolio design process, there are clearly also challenges for multi-asset investors in doing so. In Section 1 of this paper we outline why the integration of ESG data with other whole-of-fund data and assumptions is a key step to integrating ESG into the portfolio design process. Section 2 of the paper then provides some worked examples of how this information can be applied in different portfolio construction problems.

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