Neuberger Berman’s Custom Direct Investing (CDI)™ platform offers client customization across a range of Environmental, Social, and Governance considerations, collectively known as ESG.

ESG customization can be applied to core exposures, active manager models, and factor portfolios, while also taking into account a client’s investment objectives and tax liabilities. Below, we illustrate the impact of two ESG solutions on a cash-funded NB CDI™ US Large Cap Core strategy:1

  1. Our ESG Overlay solution utilizes our NB Sustainable Exclusions Policy to exclude names based on industry, human rights guidelines, fossil fuels, etc. For the full policy, please see our website.
  2. Our ESG Overlay Plus solution incorporates negative and positive screening based on our proprietary NB ESG Quotient in addition to ESG Overlay exclusions. Our NB ESG Quotient combines third-party vendor data, like MSCI, as well as Neuberger Berman’s equity research analyst views. In the NB CDI™ US Large Cap Core strategy with ESG Overlay Plus, we aim to achieve an improved overall ESG posture by removing the most negative rated names from the investable universe (negative screening), overweighting companies with strong ESG scores, and underweighting companies with poor ESG scores (positive screening)

Neuberger Berman’s CDI™ US Large Cap Core strategy is benchmarked to the S&P 500 Index. We are showing estimated initial cash-funded portfolios; a portfolio will change over time depending on a client’s tax objectives, ESG or security restrictions, and market conditions. With no client ESG preferences, the initial holdings of a cash funded portfolio will typically have low tracking error (~0.50%) to the S&P 500 Index.

  NB CDI™ US Large Cap
ESG Consideration None ESG Overlay ESG Overlay Plus
Description No ESG considerations Negative screen Negative and positive screens
Portfolio Names 184 193 234
Names Excluded 0 17 48
Weight Excluded 0.00% 2.08% 6.80%
Tracking Error to S&P 500 0.50% 0.50% 0.50%
MSCI Industry-Adjusted ESG Score 6.35 6.38 6.46

The table above shows how the overall number of stocks changes, and the overall market cap weight of names removed from the benchmark. The top 5 names removed in ESG Overlay and ESG Overlay Plus make up 1.25% and 3.62%, respectively, from the NB CDI™ US Large Cap Core strategy as seen below.

Top 5 Excluded Names for NB CDI™ US Large Cap Core Strategy

Rank ESG Overlay ESG Overlay Plus
1 Philip Morris International Inc Berkshire Hathaway Inc.
2 Altria Group, Inc. Exxon Mobil Corporation
3 Northrop Grumman Corporation Philip Morris International Inc.
4 General Dynamics Corporation Altria Group, Inc.
5 American Electric Power Company, Inc. Northrop Grumman Corporation
Sum 1.25% 3.62%

The estimated portfolios with ESG considerations have the same or better MSCI Industry-Adjusted ESG score than the standard NB CDI™ US Large Cap Core portfolio with no ESG overlay (see Table 1), and as a result of our optimization process, achieved 50 bps of predicted tracking error.

Our ESG solutions can be customized to a client’s preferences, including 50+ personal values screens such as restricting alcohol, tobacco, or private prison stocks from a portfolio. if you are interested in learning more about how ESG can be incorporated into your portfolio please contact your Neuberger Berman sales representative for more information.