ESG Investing For Dummies

Chapter 8

Analyzing Equity-Based Instruments

IN THIS CHAPTER

Integrating ESG into stocks and other equity instruments

Delving into quantitative strategies for stocks

Checking out smart beta strategies for stocks

Focusing attention on a given ESG theme

Typical equity-based investment funds are either actively managed (the portfolio manager decides where and what to invest in) or passively managed (a fund tends to follow market indexes, with no active decisions made by the portfolio manager). This approach applies equally to ESG funds:

• Some managers determine their ESG universe based on a given number of stocks, which naturally increases the active risk (the measure of risk in a portfolio that is due to active management decisions) within a portfolio.
• Other managers take a more passive approach by following a specified index and its composition of securities, some of which may exclude given stocks (for example, fossil fuels, tobacco, and arms-related stocks). In other words, the index company selects the portfolio of companies that the fund manager then follows.

This chapter investigates ...