The Puzzle of Sustainable Investment: What Smart Investors Should Know
2024. Lukasz Pomorski. Wiley
In “The Puzzle of Sustainable Investment,” Lukasz Pomorski, a senior vice president at Acadian Asset Management and an adjunct professor at Columbia University, presents a comprehensive guide for sustainable investors. He delves into the realm of environmental, social, and governance (ESG) investing, providing valuable tools and insights for navigating this rapidly evolving field. Through practical examples and case studies, Pomorski offers a well-rounded view of the opportunities and challenges in sustainable investing, emphasizing the importance of integrating ESG considerations into investment strategies.
One of the key takeaways from the book is the concept that ESG characteristics can serve as valuable sources of information for investors, regardless of their personal views on ESG investing. By incorporating ESG factors into portfolio construction, investors can potentially enhance their risk-return profile, leading to a higher Sharpe ratio. Pomorski also discusses the implications of ESG integration on portfolio construction, highlighting the trade-offs between financial attractiveness and carbon intensity reduction.
Pomorski references a recent study that analyzed global stock returns in relation to ESG ratings, concluding that while ESG ratings may not directly impact stock returns, they can offer valuable insights into the underlying risks of companies. The book also explores case studies on topics such as green bonds and net-zero portfolios, showcasing how sustainable investing can drive positive impacts through investment decisions.
Overall, “The Puzzle of Sustainable Investment” provides a well-researched and practical guide for investors looking to incorporate sustainability considerations into their portfolios. As the discourse around the role of business in society continues to evolve, this book offers valuable insights into the intersection of finance and sustainability, urging investors to consider the broader societal impacts of their investment decisions.
[1] R. Alves, P. Krueger, and M. A. van Dijk, “Drawing Up the Bill: Is ESG Related to Stock Returns around the World?,” working paper, University of Geneva (2023).