CHAPTER 19

Building and Back-Testing an ESG Index

From scores to a tilted index in Excel and R

Opening question

“Can I build my own ESG index and test it honestly?”

In this chapter

The data an ESG index needs: prices, scores, emissions and exclusion flags — each with the date it became known
The four rules of a tilted index: screen, select, tilt and cap
A worked example of score tilting and iterative capping
A compact index engine in R, checked against an independent simulation
Back-test results: return, risk, tracking error and carbon intensity compared with the parent
Look-ahead bias in scores, rating rewrites and survivorship — and how much they flatter a test
Turnover, buffers and costs
From back-test to published index: methodology and governance

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This chapter is in the full book

Chapter 1 is free to read online. The full text of chapter 19 — with its tables, figures, worked examples and practice lab — is available in the complete edition of ESG and Sustainable Investing: From Theory to Practice — Vietnam Readiness (Volume 4, NXW Investment Library).

Read Chapter 1 free Get the full book — [email protected]

Sections of this chapter

19.1 Why build your own ESG index?

19.2 The data: prices, scores and emissions with their dates

19.3 The rules: screen, select, tilt and cap

19.4 Tilting and capping, step by step

19.5 The engine in R

19.6 Back-test results: the ESG index against its parent

19.7 Pitfalls: look-ahead bias, rating rewrites and survivorship

19.8 Turnover, buffers and costs

19.9 Building an ESG index for Vietnam

19.10 From test to publication

← Chapter 18: Building an ESG Portfolio Chapter 20: ESG in Vietnam and Asia →