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Exploring Responsible Investment in Passive Management Strategies: Key Insights

This article discusses responsible investment (RI) in passive management strategies, highlighting the benefits of lower cost, solid performance, and proven concepts. Key considerations include the choice between broad market funds with ESG thresholds versus themed indexes, as well as implications on asset allocation. It provides insights into different approaches, from broad market sources like MSCI to thematic sources like FTSE. Furthermore, it examines critical factors like cap weighting, fundamental weighting, turnover, and tracking error in constructing passive investments for sustainable outcomes.

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Exploring Responsible Investment in Passive Management Strategies: Key Insights

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  1. Responsible Investment in Passive Management Strategies Julie Fox Gorte Senior Vice President for Sustainable Investing Pax World Management LLC www.paxworld.com jgorte@paxworld.com

  2. Advantages of Passive Approaches • Lower cost • Performance • Proof of concept

  3. Considerations in Passive Investment Construction 1 • Broad market funds with ESG thresholds v. themed indexes • Purpose: to track a specific sector of the market, or to provide noncorrelated products to improve asset allocation? • To benefit from growing sustainability markets, or to boost sustainability?

  4. Approaches to Passive RI: Broad Market Source: http://www.msci.com/resources/factsheets/MSCI_ESG_Indices.pdf

  5. Approaches to Passive RI: Themes Source: http://www.ftse.com/Analytics/FactSheets/Home/FactSheet/Regions/RESPINV/1/WRLD/1#?fromftse=true

  6. Considerations in Passive Investment Construction 2 • Cap weighting vs. fundamental weighting • Advocacy • Turnover • Performance/tracking error • Replication • Asset allocation

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