PT  - JOURNAL ARTICLE
AU  - AJ Lindeman
TI  - Esg Score Design And Portfolio Construction
AID  - 10.3905/jesg.2022.1.037
DP  - 2022 Jan 06
TA  - The Journal of Impact and ESG Investing
PG  - jesg.2022.1.037
4099  - https://pm-research.com/content/early/2022/01/05/jesg.2022.1.037.short
4100  - https://pm-research.com/content/early/2022/01/05/jesg.2022.1.037.full
AB  - Many investors are striving to incorporate granular ESG data into their decision-making. The use of scores themselves can be questioned-do they accurately reflect one’s views, or are too many decisions being delegated? Or should one integrate ESG metrics directly into portfolio construction? We take the view of an index provider serving various clients who are looking to systematize their views. The paper naturally has two arcs, the first being score design from the ground up. The second part concerns the use of these scores (and sub-scores) in portfolio construction, wherein both the investing hypothesis and practicalities of data availability are discussed. We recommend that ESG portfolios be checked for unintended factor exposures, ESG metrics performance, as well as traditional backtest measures. In order to focus on techniques, we limit the scope of data and companies being included in this expository survey.