It is no longer sufficient to merely improve upon a set of sustainable investment (SI) characteristics compared to a benchmark, but rather that those improvements should achieve precise outcomes. Moreover, the desire to simultaneously control other index outcomes, such as tracking error, country/ industry weights and style exposures, provides additional complications. The ability to achieve such specific requirements in an index ultimately rests with portfolio construction.

This paper shows how:

• multiple SI objectives can be incorporated in an index in a transparent and flexible manner.
• the Target Exposure methodology is an evolution of FTSE Russell’s tilting methodology, which fits well with the increasing demand for index solutions that incorporate precise Low Carbon and ESG outcomes.
• precisely targeted SI solutions can also be designed for ease of implementation and limited levels of tracking error.