Measuring ESG Effects in Systematic Investing
Wiley Finance Series
1. Edition April 2024
416 Pages, Hardcover
Professional Book
A unique perspective on the implications of incorporating ESG considerations in systematic investing
In Measuring ESG in Systematic Investing, a team of authors from Barclays' top-ranked Quantitative Portfolio Strategy group (ranked #1 by Institutional Investor in its 2022 Global Fixed Income Research Survey in both the US and Europe) delivers an insightful and practical discussion of how to reflect ESG considerations in systematic investing. The authors offer a cross-asset class perspective--incorporating both credit and equity markets in the United States, Europe, and China--a unique coverage scope amongst books on this subject. They discuss the interaction between ESG ratings and various other security characteristics, suggest a methodology for isolating the ESG-specific risk premia, analyse the impact of an ESG tilt on systematic strategies and risk factors, and identify several ESG-based signals that are predictive of future performance.
You'll also discover:
* Analysis of companies in the process of improving their ESG ranking ("ESG improvers") vs. firms with best-in-class ESG ratings
* A study using natural language processing (NLP) to predict changes in corporate ESG rankings from company job postings for sustainability-related positions
* In-depth explorations of ESG equity fund performance and flows and the information content of ESG ratings dispersion across several providers
Perfect for portfolio managers including non-quantitative, fundamental investors, risk managers, and research analysts at financial institutions such as asset managers, pension funds, banks, sovereign wealth funds, hedge funds, and insurance companies, Measuring ESG in Systematic Investing is also a must-read resource for academics with a research interest in the performance and risk implications of ESG investing.
C.S. Venkatakrishnan, Group Chief Executive Officer, Barclays
Preface xv
Jeff Meli, Global Head of Research, Barclays
Acknowledgements xvii
Introduction xix
Lev Dynkin, Global Head of Quantitative Portfolio Strategy, Barclays Research
Part One: Effect of ESG Constraints on Portfolio Performance and Valuation
Introduction to Part I 1
Chapter 1 How Do ESG Criteria Relate to Other Portfolio Attributes? 5
Chapter 2 Measuring the ESG Risk Premium: Credit Markets 19
Chapter 3 Measuring the ESG Risk Premium: Equity Markets 43
Chapter 4 Performance Impact of an ESG Tilt in Sovereign Bond Markets 77
Chapter 5 Effect of SRI-Motivated Exclusion on Performance of Credit Portfolios 115
Part Two: Systematic Strategies and Factors Subject to ESG Constraints
Introduction to Part II 133
Chapter 6 Effect of ESG Constraints on Credit Active Returns 137
Chapter 7 Incorporating ESG Considerations in Equity Factor Construction 169
Part Three: Performance Implications of Companies' ESG Policies
Introduction to Part III 203
Chapter 8 ESG Rating Improvement and Subsequent Portfolio Performance 205
Chapter 9 Predicting Companies' ESG Rating Changes Using Job-posting Data 237
Chapter 10 The Relationship Between Corporate Governance and Profitability 271
Part Four: the Lack of Uniformity in ESG Definitions--Investment Implications
Introduction to Part IV 283
Chapter 11 ESG Equity Funds: Looking Beyond the Label 285
Chapter 12 Combining Scores from Multiple ESG Ratings Providers 321
Chapter 13 The Informational Content of Dispersion in Firms' ESG Ratings across Providers 337
Index 373
ARIK BEN DOR, PHD is a Managing Director and a QPS member since 2004. In addition to originating innovative fixed income research for over two decades, he initiated and oversaw QPS extension into equity markets, and the development of cross-market signals between equity and credit markets. Arik co-authored 3 QPS books on quantitative investing, 30 articles in leading industry journals, and is a member of the Journal of Portfolio Management and Journal of Fixed Income editorial boards. He holds a PhD in Finance from the Kellogg Business School at Northwestern University, and worked at Lehman Brothers and Morgan Stanley prior to Barclays.
ALBERT DESCLÉE is a Managing Director in Barclays QPS based in London, and is responsible for its European activities. He advises investors on all aspects of portfolio construction. He was ranked 1st in Institutional Investor European Fixed Income Research Survey in the Quantitative Analysis Category from 2019 to 2023. He joined Barclays in 2008 from Lehman Brothers. He graduated from the Catholic University of Louvain (Belgium) and obtained an MBA from INSEAD.
JINGLING GUAN, PHD is a Director in Barclays QPS. She works on research related to systematic investing in both equities and credit, including signal development (especially cross-asset-class signals), portfolio construction, and risk hedging. She joined Barclays in 2015. Jingling holds a PhD in Finance from Kellogg School of Management, Northwestern University.
JAY HYMAN, PHD is a Managing Director in Barclays QPS. He advises investors and publishes research on all aspects of portfolio structuring and risk management, across multiple asset classes. He has co-authored four books with QPS colleagues. Jay joined Barclays in 2008 from Lehman Brothers, where he worked on quantitative portfolio strategies since 1991. Jay holds a PhD in Electrical Engineering from Columbia University.
SIMON POLBENNIKOV, PHD is a Managing Director in Barclays QPS. He is responsible for empirical research of all quantitative aspects of the investment process including systematic strategies and investment styles in fixed income, benchmark customization, tactical allocation, and hedging. Simon joined Barclays in 2008 from Lehman Brothers. Simon holds a PhD in Empirical Finance from Tilburg University, Netherlands.
