Growing use of Factor Investing to Implement ESG Objectives

Almost two thirds (66%) of investors believe factors can be used to implement their ESG objectives, a sharp increase from 2018 (42%), Invesco’s seventh annual Invesco Global Factor Investing Study has found. Increased returns for extractive industries this year was seen as a possible reason for a fall in the share of investors adopting ESG strategies primarily to enhance performance, from 75% last year to 59%. While enhanced performance was previously the most commonly cited reason for ESG adoption, said the US-based global asset manager, demand from clients and beneficiaries was this year the top reason (76%). However, this challenging period for ESG performance was also seen as creating an opportunity: improved performance was cited by 72% of survey respondents as the main advantage of using factors to help implement ESG. The study was based on interviews with 151 institutional and retail factor practitioners managing over US$25.4 trillion in assets combined. Georg Elsaesser, Senior Portfolio Manager, Quantitative Strategies at Invesco, said: “Factor investing is clearly emerging as a solution to mitigate potential unintended biases from ESG integration in equities, and even more so in fixed income, where the task is more challenging.”

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