ESG Quant
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ESG Quant (or ESG Quantitative) is an investment strategy, developed by Arabesque Partners,[1] which involves quantitative equity investing[2] while utilizing ESG (environmental, social, and corporate governance) information, often referred to as "non-financial"[3] information. ESG Quant strategies are implemented within systematic trading or quantitative trading approaches that leverage a large and growing collection of commercial ESG, alternative and non-profit or academic datasets.[4] As such, there is no human judgment or discretionary buy-sell decision making; rather, “in a pure quant model the final decision to buy or sell is made by the model”[5] or through the “utilization of an expert system that replicates previously captured actions of real traders.”[6]
ESG Quant funds invest in companies with strong performance on the material ESG issues for their sector and region. As a result, such funds aim to invest in sustainable companies, which are better positioned for future stock price outperformance, as shown by a growing body of literature.[7][8][9]
A growing body of research around ESG Quant funds suggests ESG compliance and alpha generation are not mutually exclusive outcomes.[10][11] Several ESG-modelled portfolio construction frameworks have since surfaced to optimize portfolio returns, including a patented method and system conceived by PanAgora Asset Management’s Mike Chen and George Mussalli.[12][13][14]