The development of an ESG attribution model

By  Robbert Lammers, Sam Radford and Vincent Verkerk 

INTRODUCTION 

In recent years, environmental, social, and governance (ESG) considerations have gained significant prominence in the investment landscape. Investors now recognize that sustainable practices and responsible corporate behavior can impact financial performance. Consequently, integrating ESG factors into investment decisions has become a critical aspect of portfolio management (Steehouwer, 2023). 

At the same time, financial institutions, once primarily focused on maximizing returns, now acknowledge that their investment choices affect the environment, society, and communities. Whether it’s carbon emissions, labor practices, or board diversity, their investments wield influence. 

CLOSING THE FEEDBACK LOOP: INCLUDING ESG ATTRIBUTION INTO THE INVESTMENT DECISION-MAKING PROCESS 

To navigate this evolving landscape, financial institutions must gain deeper insights into the effects of the investment decisions they make. Traditionally, the investment decisionmaking process starts with exante expectations of the future, shaping asset allocation and security selection. Performance attribution aims to complete a feedback loop by showing the expost realization of the portfolio’s performance, allowing investors to analyze their decisions and identify missing variables.

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