SI Indexes: Top-Down Targets Or Bottom-Up Aesthetics?

Andrew Dougan & Elizaveta Nebykova

Research Organisation
FTSE Russell

Report Date
June 1, 2021

Document summary

A debate is brewing as to whether headline (or “top-down”) Sustainable Investment (SI) targets, such as carbon emission reductions or ESG uplifts, are inconsistent with stock level (or “bottom-up”) conditions required for successful corporate engagement.

In this paper, the authors present a transparent portfolio construction technique that:

  • Allows multiple and precisely set portfolio level SI targets to be achieved
  • Has the flexibility to include various stock level constraints and exclusions
  • Retains a simple relationship between stock weighting and SI characteristics that is essential for engagement purposes.