What is the difference between Best-in-class and Momentum ESG investing?

What is the difference between Best-in-class and Momentum ESG investing?

• A. Best-in-class ignores ESG and focuses on price momentum
• B. Best-in-class selects firms meeting certain ESG hurdles, while Momentum targets firms showing recent improvement in ESG performance.
• C. Momentum always underperforms best-in-class
• D. Best-in-class is the same as momentum; no difference

Answer: (B)

Best-in-class and Momentum ESG investing use different screening rules to pick stocks. Best-in-class screens for high ESG performance across an industry, selecting firms that meet predefined ESG thresholds or are leaders in their sector. Momentum ESG investing, by contrast, looks at the trend in ESG performance and favors firms that have shown recent improvement in their ESG metrics, even if they aren’t the top-rated in absolute terms yet. So the best answer describes Best-in-class as selecting firms meeting ESG hurdles, while Momentum targets firms with improving ESG performance over recent periods. For example, a Best-in-class approach might choose energy companies with the strongest ESG scores within that industry. Momentum would pick energy companies whose ESG scores have been rising over the last 12 months, regardless of their current absolute rank. The other statements don’t fit: Best-in-class isn’t about price momentum or ignoring ESG, Momentum isn’t simply the same as Best-in-class, and there’s no universal rule that Momentum always underperforms Best-in-class.

Best-in-class and Momentum ESG investing use different screening rules to pick stocks. Best-in-class screens for high ESG performance across an industry, selecting firms that meet predefined ESG thresholds or are leaders in their sector. Momentum ESG investing, by contrast, looks at the trend in ESG performance and favors firms that have shown recent improvement in their ESG metrics, even if they aren’t the top-rated in absolute terms yet. So the best answer describes Best-in-class as selecting firms meeting ESG hurdles, while Momentum targets firms with improving ESG performance over recent periods.

For example, a Best-in-class approach might choose energy companies with the strongest ESG scores within that industry. Momentum would pick energy companies whose ESG scores have been rising over the last 12 months, regardless of their current absolute rank. The other statements don’t fit: Best-in-class isn’t about price momentum or ignoring ESG, Momentum isn’t simply the same as Best-in-class, and there’s no universal rule that Momentum always underperforms Best-in-class.