As asset owners transition to sustainable investing, many seek portfolios with low tracking error to the core benchmarks they are replacing. Multiple considerations must be made when constructing such portfolios. The trade-off between tracking error, sustainability goals, and industry exposure, for example, must be managed. The authors illustrate the trade-offs across these three dimensions for a variety of sustainability metrics. In addition, sustainability portfolios may use one metric in the construction of the portfolio but may be judged on other metrics.
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