OVERVIEW

How can investors uncover companies that make a positive impact and also provide a compelling return profile? By following the market.

Our research shows that:

• Changing consumer preferences and demand are driving companies to provide more impactful and responsible products and services.
• Asset owners, in turn, are increasingly seeking investments that intersect upside returns and sustainability.
• Complex problems require multi-dimensional solutions that not only target companies with alignment to SDGs, but also those with strong ESG and fundamental attributes while balancing risk considerations.
• This tradeoff between risk and sustainability necessitates a sophisticated data approach and advanced portfolio engineering.

Historically, measuring the impact of public companies has been challenging due to the lack of reported data. To make matters worse, certain companies employ deceptive marketing practices to mislead investors into believing their products, services, and policies are in line with Environmental, Social and Governance (ESG) values. These are the very reasons that some asset owners have begun to view ESG as only part of the solution for investing with impact, and why PGIM Quant has devoted several years to building a complete, transparent, and effective ESG model. Despite the challenges facing impact investing, we believe that today asset owners have an opportunity to go further with their investment ambitions by broadening their investment goals from risks and returns to incorporate approaches that truly help address the increasing social and environmental challenges facing the world. Here, we introduce an improved approach for investing with impact in global equities markets.