“Some managers like PanAgora Asset Management, though, have their own proprietary quantitative models that help identify ESG friendly companies that can also deliver alpha. “We would look at measures such as cost of capital to see which areas have a lower and higher cost of capital,” says Mike Chen, director of portfolio management, adding that ESG-rated companies tend to have less exposures to systematic and company-specific risk factors, which can lead to a lower cost of capital. “We would also look at how a manager is being compensated – is it direct ownership or stock options – and the behaviour of the company’s stock.”

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