In focus

Managing sustainability from a total portfolio perspective

Whatever the reasons for considering environmental, social and governance (ESG) criteria and sustainability in a portfolio, managing this exposure across multiple asset classes is significantly more complicated than managing it within a single asset class.

As more asset owners move towards the adoption of sustainability objectives, there are a number of important decisions they will need to make at the outset of the construction of a suitably ESG compliant multi-asset portfolio:

  • How far along the sustainability spectrum do they want their assets managed?
  • How much sustainability do they want to incorporate in their overall assets?
  • How will sustainability be implemented? Will it be applied to just some components, all components and/or asset allocation?
  • If sustainability is applied at the asset allocation level, how should this be incorporated?

Little has been written about how to manage ESG, across multiple asset classes, at the total portfolio level. There are many papers on individual investment components (mainly equities) but the complexity and interlinkages involved in the application between asset classes has had less exposure.

In a series of papers we will be looking at ESG in the wider context of a ‘whole’ portfolio. In this paper, we discuss how to address the decisions regarding positioning on the sustainability spectrum and setting a sustainability budget.

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.