Andre Breedt, Research Associate, Capital Fund Management
The corpus of environmental, social, and governance (ESG) literature, and the proliferation of ESG-inspired investment vehicles has increased at an astonishing rate. However, the amount of ESG research related to, and responsible investment (RI) funds reliant on quantitative investment (‘quant’) strategies has done so much more slowly. Some still claim that quants are unable to navigate non-linear market developments – the likes of which ESG integration practices are likely to accelerate – and, that the use of shorting is incompatible with RI.
But, with quant strategies and ESG two of the fastest growth areas within the asset management industry, and investors evermore savvy and interested in both, we believe that the investment landscape is likely to be altered by their continued, and collective development.
During this session we will cover:
• Why did RI take longer to become relevant to quant funds?
• What do we use ESG data for, and what are the remaining challenges?
• Is the practice of shorting completely compatible with RI? And…
• …do our short positions have a symmetrical impact to our longs? Moreover…
• …do our longs have a societal impact, even when they are built with derivatives?
• Will ESG ever dissolve into business as usual?
Finally, the session will conclude in discussion about the organisational challenges of ESG integration for a quant fund, from raising awareness and creating buy-in at firm level, to shifting the perception of investors and the investment community about the compatibility of ESG and quantitative investment strategies.
The session will conclude in asking the simple question: “What are we ultimately trying to achieve: are we acting based on values; considering risk and opportunities; or targeting societal outcomes?”