ESG exclusion for index investors.

As more and more investors now agree that passive index funds are usually preferential over active funds, many investors struggle to implement their ESG-policy when invested in ETFs and other index funds. The problem is that when you invest in an index fund you invest in all the companies in the index, including the ones you do not want to invest in.

 

ESG-hedging overlay

In 2014 Quantrust started offering ESG-neutralisation to institutional investors as a way to overcome this problem. Quantrust first calculates the indirect look-through exposure of the whole investment portfolio, containing both passive and active funds and mandates, to the companies on the client's ESG-exclusion list. It then creates an ESG-hedging overlay, by shorting the companies on the list for the size of their exposure in the total portfolio. The ESG-overlay neutralises the exposure to the controversial companies. Quantrust has vast experience shorting companies this way due to its experience running long-short funds, hence the risks are minimal.

ESG-neutralisation is offered to institutional investors as a stand-alone service. Quantrust can cater its policy to any ESG-criteria, as long as the controversial company equities are readily available to short.

 

Quantrust ESG-exclusion list

Quantrust neutralises its in-house funds according to Quantrust's own ESG-exclusion list: this list includes all companies on Achmea’s ESG exclusion list, which excludes companies on 6 criteria, augmented with companies that score less than 2 stars in the Forest 500. The latter companies contribute to deforestation and unsustainable palm oil plantations, something Quantrust is committed to stop.

Currently Quantrust neutralises over EUR 500 million of capital through its ESG-hedging overlays.