It is important to note that we have deliberately excluded environmental, social, and governance (ESG) factors as a risk premium. This is not because we believe ESG to be unimportant; indeed, the opposite is true. As a responsible investor, we have fully integrated ESG into our systematic investment processes as we believe ESG helps promote competitive financial returns and positive environmental and societal impact. However, a sufficiently long history of ESG data is not available so it does not, for the time being, meet our prerequisite criteria for inclusion as a RIPE factor.
Nevertheless, we have fully integrated ESG within our SMARTER Beta™ equity approach since we believe ESG helps promote competitive financial returns and positive environmental and societal impact. Our ‘ESG Inside’ methodology excludes controversial companies, specifically those companies involved in the production of cluster bombs and munitions, landmines, depleted uranium weapons and armour, and chemical and biological weapons. We also exclude companies deemed to have severe controversies (the ‘worst of the worst’) from our investable universe, based on ratings by our ESG data partner, Sustainalytics.