Low volatility and ESG investing combined: Invesco’s holistic approach

Abstract

The low volatility factor in conjunction with the style factors Quality, Value and Momentum, has empirically proven to be able to moderate market risks and improve a portfolio’s overall risk-return profile. By integrating ESG into such a factor portfolio, future risks may be mitigated. We present a proprietary approach to managing ESG risks that can maximize sensitivities to the desired multi-factor characteristics, and we calculate Climate VaR under different global warming scenarios.