Insight

ESG: Navigating the benchmark maze

23 January 2024
invesco
Invesco
ESG Risk and Reward
Key takeaways
Active risk concerns
1

While active risk has remained stable for the MSCI ESG Leaders and MSCI ESG Universal Screened index suites, it has increased significantly for the MSCI Climate Paris Aligned and MSCI SRI indices.

Significant turnover
2

All ESG indices, for both Europe and the world, exhibit higher turnover, ranging from 10% to 28% p.a. – compared to 2% for the parent indices.

Stock weight risks
3

The ESG indices appear to be more concentrated than their counter parts… the weight of the largest and the ten largest stocks indicate a significantly higher concentration risk, especially for the SRI index.

Investors face a plethora of ESG benchmarks, making for a landscape that is often confusing and fraught with uncertainty about which one to choose – especially for those favouring a passive investment strategy. We feel the time has come to seek greater clarity.

We’ve analysed popular global and regional ESG indices, looking at their past performance and factor patterns, as well as comparing them to traditional capitalisation-weighted indices. We also investigated ways to mitigate the risks inherent in the individual ESG benchmarks and present an alternative that may successfully address some of their shortcomings.

Read more in our latest research piece.

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