Sustainable Factor Investing

The advent of what might be called sustainable factor investing has positive implications for the sphere of investment and beyond

Oct 12, 2017 | Manuela von Ditfurth and Andreas Hoepner

The realization that even the finest theoretical equations might not always hold true in the real world – particularly when that world is inhabited by creatures perilously susceptible to cognitive error – has paved the way for new and more sophisticated investment strategies. Meanwhile, the wider recognition that our shared destiny depends in no small part on a collective desire to work for the greater good has led to a much richer appreciation of the importance of sustainability.

These shifts, which have occurred over the course of several decades and are still developing today, have brought with them two key corollaries: the rise of factor investing and the emergence of environmental, social and governance (ESG) considerations in assessing an organization’s practices, function and broader impact.

Now the two are increasingly converging, and the result is what we might call sustainable factor investing – a phenomenon whose implications for the sphere of investment and beyond are potentially far-reaching. In this white paper we examine how this synergy has come about, what it means today and where it might lead. We begin by investigating the histories of factors and ESG respectively; we explore how their stories have more recently become entwined; and we demonstrate the benefits of an investment philosophy that takes proper and rigorous account of both.


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