Is ESG taking a bite out of your diversification?

Diversification is the foundation of modern portfolios, described by Nobel laureate Harry Markowitz as ‘the only free lunch’ for investors. But could the trend towards investing according to environmental, social, and governance (ESG) principles undermine diversification? Our new research explores this important question and quantifies in innovative ways the unexpected impacts of excluding sectors like energy and tobacco.

Podcast: Why divestment might hold some unexpected surprises

What happens when a major sector, such as oil and gas, is excluded from an equity index on ESG grounds? The allocation to those stocks has to be redistributed, typically towards the already large technology and finance sectors. What was once a broad market index has suddenly become much more concentrated. On our podcast, we discuss the unintended consequences of whole sector exclusions and dive into the ways investors can keep their ESG impact high and their tracking error low.

Further reading

How to optimise diversification to improve risk-adjusted returns

How can expected returns be enhanced without increasing risks? We discuss cutting-edge visualisation tools and a first-principles approach to secure the predictable benefits of a diversified portfolio.

Active ownership: Global engagement to enhance long-term value

Active ownership means working to bring about real, positive change to create sustainable value for our clients. Our annual Corporate Governance report details how we achieved this in 2018.



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Richard Kelly Head of Client Business, Ireland (00353) 19058522
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Nancy Kilpatrick Head of Non Profit Relationships 020 3124 3535
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Chris Lyons Client Director 020 3124 3131