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Effectively managing risks in an ESG portfolio

Author

Listed:
  • Bertolotti, Andre

    (Head of Global Sustainable Research and Data, BlackRock Sustainable Investing, USA)

Abstract

Environmental, social and governance (ESG) integration into active and passive portfolios is now a key part of the fast-growing area of sustainable investing. As portfolio managers integrate ESG into their strategies, they add new components of risk that are in addition to the traditional financial risks familiar to chief investment officers (CIOs) and risk managers. In this paper, the author reviews ESG risks from the practitioner’s point of view, including risks found in ESG data itself that stem from the definition, collection and aggregation process. The author then discusses the portfolio characteristics associated with integrating ESG data as well as the challenges in building tools to measure risk and report on attribution. Next, he looks at connections between screening and reputational risks and the beneficial role that engagement can play. Finally, he discusses tail risks and reviews the role that physical climate risk plays in managing portfolios.

Suggested Citation

  • Bertolotti, Andre, 2020. "Effectively managing risks in an ESG portfolio," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 13(3), pages 202-211, June.
    • Handle: RePEc:aza:rmfi00:y:2020:v:13:i:3:p:202-211
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    Citations

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    Cited by:

    1. Gallucci, Carmen & Santulli, Rosalia & Lagasio, Valentina, 2022. "The conceptualization of environmental, social and governance risks in portfolio studies A systematic literature review," Socio-Economic Planning Sciences, Elsevier, vol. 84(C).
    2. Gong, Xiaomin & Xie, Fei & Zhou, Zhongsheng & Zhang, Chenyang, 2024. "The enhanced benefits of ESG in portfolios: A multi-factor model perspective based on LightGBM," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    3. Jiajia Liu & Zhenzhen Ge & Yahan Wang, 2024. "Role of environmental, social, and governance rating data in predicting financial risk and risk management," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 260-273, January.

    More about this item

    Keywords

    ESG risks; ESG portfolio management; ESG integration; engagement; climate risk;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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