Quantitative Investment Strategies and ESG: the perfect match for efficient and responsible solutions


Can acting for the planet and our communities while at the same time preserving portfolio returns work hand in hand? With environmental issues, the energy transition, climate policies and renewable energies as key concerns and priorities for companies, asset managers, hedge funds, insurers, banks and pension funds, one of the answers lies in quantitative investment strategies (strategies based on algorithmic models that provide clients with systematic strategies) that include the most prominent ESG themes on the market.

Sustainable investment and ESG have never been as popular as they are today. Between January 2020 and March 2021, ESG equity ETFs* more than tripled in assets under management from 65 billion to 217 billion dollars, according to Societe Generale Cross-Asset Research/ETF. In the first half of 2020**, the number of signatories of the Principles for Responsible Investment (PRI) increased by 28% to reach over 3,000 entities, and their assets under management by 20% to over 100 billion dollars. 

In order to achieve their performance and risk management objectives, clients are looking for tailor-made and innovative investment solutions in this context of green transition. They want access to specific themes and/or market segments and the ability to exclude certain factors or risks. Offering improvements in terms of return, risk control and cost over traditional solutions, quantitative investment strategies with liquid assets as the underlying (read more here) meet these new investor needs.

"Clients want to benefit from the strong market trends in sustainable investing. They also want access to quality content, as well as liquid, simple and inexpensive investment solutions to boost their portfolios. We combine the expertise and know-how of our Societe Generale Index (SGI) and our research (ESG, quantitative or equity strategy) teams to offer systematic and thematic investment strategies that give clients exposure to the most popular and innovative current topics, explains Guillaume Arnaud, Head of Investment Strategies Structuring within the index activities of Societe Generale. These strategies are offered to clients through both flagship indices and tailor-made indices, accessible through investable formats such as swaps, certificates or structured products”. 

Thanks to such flagship indices and baskets, investors can access the most prominent climate policy themes in the market. A good example of this is the SGI European Green Deal basket. It is a basket of 44 European equities from various sectors (renewable energies, sustainable mobility, construction and renovation or circular economy) that are well positioned to benefit from the European "Green Pact" – a current promising trend. Built in a similar way, SGI Greener America Ahead Index and SGI China Green Transition Index are indices that are gaining increasing interest from investors. They offer exposure respectively to US equities that can benefit from Joe Biden's New Green Deal and to Chinese equities that can benefit from China's climate strategy. Water and alternative energies are also environmental topics that are highly sought after by clients, as illustrated by the success of the SG World Water and World Alternative Energy indices. Launched in 2006 in partnership with RobecoSam, these indices, which provide diversification and long-term performance, each have assets under management of more than 1 billion euros. Another popular index is the SGI European ESG Leaders index which is a strategy that includes around 100 equities selected after various exclusions (sectors, controversies) and that benefit from the best ESG ratings from the Sustainalytics agency.

Tailor-made products are developed with clients, taking into account their visions, rules and constraints in terms of ESG (ESG scores, exclusions, geographical focus, etc.). “In 2020, an international asset manager was able to gain exposure to our strong balance sheet theme through an index that we built based on our underlying equity selection for this theme and the removal of stocks that did not meet its internal ESG criteria, adds Guillaume Arnaud. More and more European clients are applying their own rules to our equity selections to get exposure to our quantitative strategies, thus improving the ESG characteristics of their funds.” 

This range of Societe Generale products that combine ESG and quantitative investment strategies has been very successful and has contributed to the tripling since the end of 2018 of the SGI platform's ESG index outstandings to 6.5 billion euros at the beginning of 2021.

*  based on a universe of ETFs domiciled in Europe, the US, Hong Kong and Singapore.

** Source: CFA Institute report - “Future of sustainability in investment and management”.