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INVESTING/PORTFOLIO STRATEGIES

Panelists discuss changes, challenges in ESG investing

Institutional investors in the U.S. increasingly are modifying mainstream indexes to get exposure to environmental, social and governance factors in their portfolio instead of using specialty ESG indexes, Tony Campos, FTSE Russell's director of ESG project management, Americas, said during a panel at the PensionBridge conference Tuesday.

Mr. Campos said the trend is occurring because investors want to integrate ESG through their entire portfolio, so they want a broad market index. The modification occurs in the weightings of index companies, with firms having high ESG scores given a larger weight than those with lower scores.

A common thread among speakers on the ESG panel was the difficulty in obtaining standardized ESG data.

“The data can be messy”, said Bruno Bertocci, managing director, head of the sustainable investors team at UBS Asset Management Americas.

But Mr. Bertocci said having the patience to sort through the data can give investors an advantage over those who don't use ESG factors.

He said the Sustainability Accounting Standards Board is in the process of finalizing standards for various industrial sectors, which should help with more consistent data from companies.

Travis Antoniono, investment officer, corporate governance, with the California State Teachers' Retirement System, said during the discussion that CalSTRS is integrating ESG through its entire portfolio in addition to managing internally a separate $2.5 billion index portfolio of companies with low carbon emissions.

Mr. Antoniono said the $202.1 billion pension system is tying the low-carbon index equity portfolio to the MSCI All Country World index.