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ESG Strategies: Passive and Active Management

Do the laws of passive and active strategies also affect sustainability investing?

I recently concluded a sustainability data visualization project. The draft of the visualization is below




Viewing the plot, I sought to understand the sustainability of stocks on the SIX. Parameters were used to identify sustainability in terms of ESG scores (70 and above) and Economic score (having an expected return above the market return).


I developed four sustainable funds based on the ESG findings and market returns. Additionally I used ETHOS fund data found on Swiss Fund Data to develop the sustainable funds. The funds developed were:

  1. Negative Screening

  2. Best in Class Approach

  3. Thematic Approach

  4. ESG integration


Against the staus quo, ESG integration was the only fund that was not "sustainable." Typcially ESG itegration is hailed as one of the most effective and practical strategies for promoting sustainability.


Why is this the case? Unlike the first three strategies which are very basic to implement, when it came to the ESG integration fund, I randomly picked the ETHOS fund and duplicated the stock selectio - an in this case per the basic quantitaive metric developed, said fund was not . However, when I picked another ESG integrated fund its performace was sustainable.


It appears that ESG integration has greater levels of subjectivity and the funds constructed across traders are likely to differ much greately than the previous 3 strategies. Thus, one can argue the element of the manager's skill in the active management of an ESG integrated fund plays a greater role in the fund's performance as compared to the other 3 strategies.


Could this be the case of "passive" and active management of portfolios?


Future works:

  1. Compare performace of ESG integrated funds

  2. Calculate the average return of ESG integrated funds vs "passive" strategies (Negative screening, Best In Class Approach ~ basic strategies)

  3. Do the variations of ESG integration strategies and basic sustainability stratigies vary across market types (Geographic and effeciency wise)?

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