As outlined in the previous two posts, the definition of corporate sustainability is something very subjective. Some think primarily in terms of environmental impact, others more in terms of social issues or even corporate governance. Even within these topics, there are many different facets. In order to meet these diverse demands as far as possible, several factors come into play not only in the exclusion criteria, but also in portfolio optimization.
ESG-Score
One indicator that covers the topic of sustainability relatively broadly is the so-called ESG Score (Environment, Social, Governance). As with the exclusion criteria, we base this on the work of MSCI ESG Research - a leading provider of sustainability research. Each company is evaluated in the individual areas and a weighted «score» is determined. The higher this score, the more sustainable the company. As part of the optimization process, the aim is not only to minimize portfolio risk, but also to improve the weighted ESG score compared with the benchmark. The extent of the improvement depends on the score of the benchmark index - the lower its score, the more we improve the sustainability profile of our equity portfolio. The example of the OLZ Equity World ex CH Optimized ESG fund shows that the ESG score as of rebalancing on November 16, 2022 is 0.6 points better than the benchmark thanks to our optimization. This is also reflected in the MSCI ESG rating, which is directly dependent on the score: Our fund receives the grade «AA», while the benchmark is rated one level lower («A»).