Solutions above and beyond traditional market capitalization-weighted indices are becoming the de facto choice for benchmarks as asset owners continue to discharge their fiduciary role of investing responsibly against the backdrop of increasing investor awareness and an evolving legislative landscape for sustainability. Typically, implementing sustainability or ESG considerations during investment decision-making is likely to result in portfolios that deviate from standard market value-weighted benchmarks.
The unintended exposures – and hence risks – lead to divergent characteristics and performance, tracking errors and additional management costs. In our paper on the STOXX Europe 600 ESG-X Index, we concluded that the latter delivers a risk-return performance profile that does not differ significantly in statistical terms from the STOXX Europe 600 Index while also complying with typical exclusion-based sustainability approaches. In this paper, we extend the analysis to other flagship ESG-X benchmarks (including the STOXX Europe 600 ESG-X) that cover both regional and global indices that were launched in May of this year.
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