A new attribution approach to enhance ESG transparency
Financial institutions, traditionally focused on maximizing returns, now acknowledge that their capital allocation decisions have real-world implications, from carbon emissions to labor practices and board diversity. This shift has made integrating ESG factors into investment strategies a crucial aspect of portfolio management.
To effectively navigate this evolving landscape, investors rely on performance attribution to assess whether their decisions align with initial expectations. This process helps determine whether investment choices met financial and ESG goals or if unforeseen variables influenced the outcome. For example, if a portfolio aims to outperform a benchmark in terms of carbon emissions or achieve net zero by a specific year, performance attribution helps investors analyze both financial returns and environmental impact, creating a continuous feedback loop to refine decision-making.
Building an ESG attribution framework
Regulatory frameworks, such as the EU’s Sustainable Finance Disclosure Regulation, further reinforce the importance of ESG transparency by requiring funds that incorporate ESG considerations to disclose their practices and results. As a response to this growing need, Ortec Finance and MN - a leading Dutch fiduciary asset manager - have developed an attribution model that enables investors to compare their portfolio’s performance against benchmarks for both financial and non-financial metrics, such as carbon emissions and ESG factor scores.
The model not only attributes ESG metrics to specific investment decisions but also captures both intended and unintended consequences. Initial testing with real data from two client portfolios revealed that exclusion policies significantly reduced financed emissions, while weight caps on certain exposures designed to limit financial volatility had unintended negative impacts on carbon footprints.
An important next step for an ESG attribution calculation is to analyse the ESG performance of the portfolio over time and attribute the performance of the portfolio compared to the benchmark to different investment decisions.
In a recently released whitepaper, co-authored by Ortec Finance and MN, we explain this new ESG attribution framework in more detail.
Download the whitepaper or contact us today if you want to speak to one of our experts.
Contact
Sam Radford
Medior Business Specialist Investment PerformanceRelated Insights
-
19 March 2025Webinar recording: Utilizing NGFS climate scenarios for climate risk analysisWatch our webinar to better understand how NGFS climate scenarios can be utilized for assessing the financial impact of climate change
-
14 March 20252025 Ortec Finance Climate ScenariosLearn how the 2025 Ortec Finance Climate Scenarios help investors actively invest in the low-carbon transition while considering traditional investment risks.
-
13 March 2025Fundamentals of currency decisions in performance attributionRegister for our webinar to learn how to understand how different decisions in currency overlay programs are impacting a portfolio’s overall performance
-
10 March 2025Trade wars: what Canadian institutional investors need to knowDownload our latest trade wars report for institutional investors.
-
07 March 2025Quarterly Outlook: Q4 2024The outlook is based on the Ortec Finance Economic Scenario Generator (ESG) and offers our perspective on recent developments in the economy and capital markets.
-
06 March 2025How currency attribution enhances performance analysisDiscover how asset owners can adjust their approach to attribution in currency overlay programs to obtain useful insights into the added value of each decision.
-
06 March 2025Australian superannuation funds at risk of 46% decline in investment returns due to climate changeOrtec Finance releases inaugural Australian superannuation fund climate risk report analyzing the average portfolio allocation its Top 30 funds by AUM
-
01 March 2025Asia: Global developments will impact insurer asset management
Knock-on effects from global developments such as tariffs imposed by US president Donald Trump and multinational investment company BlackRock withdrawing from the Net Zero Asset Managers Initiative will affect asset management among insurers in Asia...
-
24 February 2025Short-term vs long-term – which should insurance asset managers be focusing on?Amrit Summan, Investment Strategy Solutions Lead, Ortec Finance, discusses rates, drivers, and the role of technology in navigating uncertain markets.