Active or passive: Effi Bialkowski (Van Lanschot Kempen)
This article was originally written in Dutch. This is an English translation
By Effi Bialkowski, Senior Portfolio Manager, Van Lanschot Kempen
To what extent can passive strategies adequately address sustainability and social impact?
Passive strategies can certainly address sustainability, particularly through exclusions and ESG tilting. Examples include exclusions based on business activities, sustainability scores, greenhouse gas emissions or violations of standards. More sustainable activities within an index can also be given greater weight.
We see varying degrees of sustainability integration in passive strategies. Some index solutions limit themselves to excluding the most controversial business activities and/or violations of standards, while others apply a broader set of criteria, combined with a tilting mechanism towards a positive contribution to the SDGs.
However, sustainability integration in passive strategies also has limitations. For example, the data used by index providers is often largely retrospective and not always completely undisputed. For maximum social impact and additional value creation, an active or hybrid approach often remains the best choice.
Sustainability integration in passive strategies has limitations.
How passive are indices today?
‘We prefer to talk about indexing. After all, even the most ‘passive’ indices have active elements. The choices made in index composition, ESG integration, sector weightings and replication methods mean that passive strategies often contain active elements. The choice of a particular region or sector is also an active choice that can have much more impact than the choice to actively track an index. The term “passive” therefore refers primarily to the implementation, not to the policy choices that precede it.'
