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ESG Risk Ratings

Distilling for Enhanced Performance
and Downside Protection

The changing economic environment has put more strain on investors, leading to further scrutiny of the strategies and factors they use to make investment decisions. This is especially true for ESG factors, where investors are facing increased pressure from new regulations and compliance policies. As a result, investors are paying more attention to the underlying sources of performance and risk in their portfolios.  

In Volume 2 of the Quantitative Investment Approaches for ESG Risk series created in partnership with Natixis, this report examines the impact of ESG risk on portfolio performance, volatility, downside risk and financial health. It provides a deeper analysis on the differences in ESG risk across regions, sectors, and company size.  

Readers of this report will learn how: 

  • Low-ESG risk portfolios outperform high-ESG risk portfolios in Europe, the United States and Canada and Asia Pacific.

  • Lower ESG risk portfolios have better risk-return attributes, displaying better raw and risk-adjusted returns, lower total downside risks, and shallower drawdowns.  

  • Lower ESG risk is associated with lower volatility, greater valuation certainty, stronger economic moats and a greater ability to withstand financial crisis. 

  • Sector analysis reveals strong outperformance in all regions for low ESG risk portfolios in the healthcare, consumer cyclicals, utilities, and basic materials sectors. 

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