Week 1: Low Carbon Investing

Question 1

What are the 4 different methods of SRI?

Answer 1

negative screening, positive screening, best-in-class, shareholder activism

Question 2

How does quant investor integrate ESG?

Answer 2

integrate in fundamental factor models of security returns and risk

Question 3

How to optimize your portfolio with ESG?

Answer 3

1. Minimize portfolio variance (in matrix language) w’Vw
2. Set target portfolio return ‘w*R = Rp
3. Set restrictions: weights add to 1/100% w’I = 1, w >= 0
4. Add ESG contraints w’ESG = …

Question 4

How does a fundamental analyst/investor integrate ESG?

Answer 4

DCF analysis, conference calls with firms, future financials not just driven by pure financials, weigh financial data against non-financial ESG data