Combining ESG and Smart Beta: “Smart Sustainability”
Among those who are using or evaluating smart beta strategies, an increasing share of global asset owners anticipate applying ESG considerations to their smart beta strategy of choice (58%, up from 44% in 2019).
Over 80% of EMEA asset owners using or evaluating smart beta expect to apply ESG considerations to smart beta, which is up from 73% last year.
In contrast, 42% of North American asset owners do, which has grown significantly from 17%.
Exhibit 4 | Do you anticipate applying ESG, climate or exclusion considerations to a smart beta strategy?
Segment = Have a smart beta allocation OR are currently evaluating/re-evaluating smart beta strategies OR are planning to evaluate smart beta strategies in the next 18 months.
Sample size for North America in 2020 is 26, below the preferred threshold of 30.
Sample size for Asia Pacific and Other regions not large enough to break out; respondents from these regions are included in total.
Exhibit 4 | Do you anticipate applying ESG, climate or exclusion considerations to a smart beta strategy?
Segment = Have a smart beta allocation OR are currently evaluating/re-evaluating smart beta strategies OR are planning to evaluate smart beta strategies in the next 18 months.
Sample size for North America in 2020 is 26, below the preferred threshold of 30.
Sample size for Asia Pacific and Other regions not large enough to break out; respondents from these regions are included in total.
Among those who anticipate applying ESG/sustainability to their smart beta strategy, climate/carbon is the top issue under consideration.
Climate/carbon tops the list of sustainability themes that appear to be a focus at 64%, with environmental considerations close behind at 59%. Governance and social themes are also widely considered, with over half of respondents indicating such.
Exhibit 5 | What ESG/sustainability issues are you considering using in a smart beta and ESG allocation?
Multi-pick. Segment = Anticipate applying ESG/sustainability considerations to a smart beta strategy.
Exhibit 5 | What ESG/sustainability issues are you considering using in a smart beta and ESG allocation?
Multi-pick. Segment = Anticipate applying ESG/sustainability considerations to a smart beta strategy.
In 2020 there is a marked decline in interest in negative screens, coinciding with a growth in the more sophisticated approach of re-weighting based on ESG/sustainability criteria.
Interest grew to 55% in re-weighting/tilting approaches based on ESG/sustainability criteria alongside more traditional smart beta/risk premia factors.
Negative screening/divestment e.g. excluding fossil fuel industries or tobacco from investment portfolios, has declined to 48%, from 64% in 2019.
Exhibit 6 | What ESG/sustainability investment approaches are you using or considering using in a smart beta and ESG allocation?
Multi-pick. Segment = Anticipate applying ESG/sustainability considerations to a smart beta strategy.
Exhibit 6 | What ESG/sustainability investment approaches are you using or considering using in a smart beta and ESG allocation?
Multi-pick. Segment = Anticipate applying ESG/sustainability considerations to a smart beta strategy.
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