Green Efficient Frontiers: Practical Considerations in Constructing Sustainability Portfolios
As asset owners transition to sustainable investing, many seek portfolios with low tracking error to the core benchmarks they are replacing. Multiple considerations must be made when constructing such portfolios. The tradeoff between tracking error, sustainability goals, and industry exposure, for example, must be managed. The authors illustrate the tradeoffs across these three dimensions for a variety of sustainability metrics.