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Another investor perspective could be to create a positive impact by allocating capital to specific compa- nies or sectors that offer solutions to global issues, which may even supersede financial motive.
A trend which is increasingly evident is that investors aim to exploit the growing volume of data and knowledge on sustainable business models in order to improve their financial returns.
Different objectives, different outcomes Objectives are important. If investors do not have any financial motives for taking certain steps – such as excluding particular companies – it is not uncommon to find that investing has a neutral or even negative impact on returns.
For fundamentally-managed equity strategies, the impact of excluding stocks may not be too material, as these portfolios typically already are concentrated. For quantitatively-managed strategies, however, restrictions usually tend to limit the power of the model, and therefore its expected performance. Never- theless, empirical tests using historical data show that if the number of excluded stocks is modest, the universe is still large enough to retain most or all of its factor exposure.
Continuing research We know from our nearly decade-long experience that integrating sustainability into the investment pro- cess is financially material. But we also know that doing so is not an exact science, given the difficulties relating to data availability and interpretation. We therefore continue our research into ESG factors to ensure that this information is implemented in our portfolios in the best possible way, and in line with our firm belief that its use in investment processes adds value to our strategies.
Important information. For professional investors only. RIAM B.V. has a license as a manager of UCITS and AIFs of the Netherlands Authority for the Financial Markets in Amsterdam and is subject to limited regulation in the UK by the Financial Conduct Authority (FCA). Details about the extent of our regulation by the FCA are available from us on request.
November 2019 portfolio institutional roundtable: Responsible investing 29
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