ESG: the new risk factor in your portfolio

Environmental, social and governance (ESG) is big business. Total investments in global sustainable assets ballooned from $5 billion in 2018 to $2.5 trillion by mid-2022. But what if, instead of viewing ESG merely as a tool to screen undesirable investments from a portfolio, it became a risk factor in its own right alongside traditional factors such as size, value, momentum, quality, low volatility and low beta?

Risk officers, managers and quants at leading buy-side firms are experimenting with ESG as an ‘alpha enhancement’ to day-to-day risk management, to stay ahead of the pack and boost profit-and-loss margins.

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