Acadian Asset Management, a firm overseeing USD82 billion in active global and international quantitative assets, has launched a sustainable Emerging Markets ex Fossil Fuel strategy.
This strategy is one of the first to focus on implementing this theme across emerging markets.
Acadian, the first quantitative manager to sign the UN Principles for Responsible Investment (UN PRI), has always seen responsible investing as an integral part of its investment process, with dedicated ESG resources in place.
Acadian created this strategy to help meet growing investor demand for divestment within portfolios, while maintaining investment return potential and ensuring investors are not penalised for investing in a sustainable manner.
“There is a subset of the US market that’s interested in impact divestment and this strategy fills a gap where there are limited options to best serve that interest,” says Asha Mehta (pictured), senior portfolio manager and director of responsible investing at Acadian.
Using a combination of proprietary methods and third-party data, Acadian has developed a process to identify and exclude companies that own fossil fuel reserves. In addition to this, Acadian applies a portfolio constraint to ensure that the aggregate carbon emissions applicable to the portfolio will be at least 25 per cent lower than those of the benchmark index. This process extends across Acadian’s 13,000-strong database of companies in the emerging markets.
Cambridge Associates, whose clients provided seed capital to launch the strategy, has found in its ongoing analysis of the ESG market that ESG factors have helped investors achieve significant outperformance in emerging markets.
In the three years since its launch, the MSCI Emerging Markets ESG Index has outperformed its parent index, the MSCI Emerging Markets Index, by a cumulative 12 percent on a total return US dollar basis. More than 50 per cent of this outperformance was attributable to ESG factors alone, after accounting for the contribution of other factors such as differences in style, country, sector and currency exposure.
Cambridge Associates has also analysed data from January 2007 up until the index’s launch in June 2013, and found that ESG ratings were a strong source of stock-specific outperformance during most of this earlier six-and-a-half-year period as well.
