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ESG Investing at Research Affiliates

Research Affiliates and our affiliated entities support investors who wish to promote responsible environmental management, active social engagement, and good governance practices (ESG) with their investment choices. We define the elements of ESG as practiced by an entity as follows:

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Responsible Environmental Management

Performing as a good steward of the natural environment, measured using a broad array of environmental metrics.

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Active Social Engagement

Managing relationships with employees, suppliers, customers, and the community with respect and with appreciation of diverse viewpoints.

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Good Governance Practices

Focusing on long-term value creation and appropriately balancing the interests of a company’s many stakeholders.

RAFI ESG Index series explained by Rob Arnott, Feifei Li, and Ari Polychronopoulos.

We are committed to putting responsible practices to work in our own day-to-day operations, as well as to collaborating on ESG investing with our partners—data providers, index calculators, asset managers, and industry groups, for example—to offer well-designed ESG strategies for investors. As a research-centric firm, we are also committed to ongoing research activities that will extend our understanding—and the investment industry’s—of the benefits and challenges associated with ESG adoption, in order to help improve ESG practices both within and outside the financial industry.

Research Affiliates is a signatory of

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Download our position statement to learn more

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Memo on US DOL Bulletin Regarding ESG Investing

Our Research Into ESG

Given the fiduciary responsibilities faced by institutional investors, we recognize that the risk and return consequences of various ESG strategies are extremely important as it relates to investment outcomes. Thus, we are particularly interested in the research related to this issue. Both our own research as well as research by others has led us to conclude that certain measures closely related to ESG tenets can be additive to returns and company performance, particularly as it relates to governance and diversity.

 

We have found that financial metrics related to corporate governance are associated with better investment performance as measured by low accounting accruals; conservative issuance and dilution practices; high profitability; and conservative investment. These metrics have been incorporated in multiple Research Affiliates product suites since 2005 as well as in our dedicated ESG products.

 

At Research Affiliates, diversity has long been an important topic in our research and in the management of our own business. Diversity in background, education, culture, frame of reference, and experience leads to diversity in thinking and ideas, and strengthens the foundation of our firm. A growing body of literature documents a positive relation between greater diversity and outcomes measured as a level of collective intelligence and firm financial performance.

 

Whereas an academic consensus on the investment benefits of other ESG factors has not emerged, Research Affiliates believes that thoughtfully designed systematic ESG strategies can improve performance and/or reduce risk while delivering on the objectives of ESG investing.

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ESG Publication Series

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Is ESG a Factor?

Applying the definition of factor robustness established by our Research Affiliates colleagues in their 2016 award-winning paper, we determine that ESG is not a factor. Nevertheless, the importance of ESG as an investing strategy is undeniable. We explore how greater clarity around defining ESG can quicken the pace of ESG integration in equity portfolios.

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Leading in Uncertain Times

Leadership is about establishing direction while also improving, aligning, and motivating the team. In good times, these goals are challenging enough, but in times of uncertainty, where we find ourselves now, it demands flexibility, curiosity about alternative routes, and willingness to solicit input from the diverse perspectives of the team.

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The Winning Formula: Mission + Culture + Team

CEO transitions are a great time to focus on refining the enduring formula of a firm’s success. At Research Affiliates that formula has three equally important elements: mission, culture, and team. The result are win-win-win outcomes—that is, a win for our end investors, a win for our distribution partners, and a win for ourselves

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Unlocking the Performance Potential in ESG Investing

By combining a tilt toward companies that display financial discipline and that embrace corporate diversity with the return engine of a fundamentally weighted portfolio, we believe investors in environmental, social, and governance (ESG)–related strategies have the opportunity to earn superior long-term risk-adjusted returns.

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What a Difference an ESG Ratings Provider Makes!

The need for ESG ratings to help investors construct portfolios in line with their ESG preferences is acute. Unfortunately, both quality and consistency of ratings can hamper the process. We compare the ratings of two well-known ESG ratings providers to highlight why investors need to have a solid understanding of their provider’s methodology.

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The Challenges of Diversity Investing

The business case for diversity is compelling, but the investment case for diversity is less clear-cut. We suggest, therefore, that investors who seek to promote diversity and its business benefits combine diversity with known drivers of excess returns.

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