Most investment managers are bound by benchmarks and indices to facilitate the measurement of their performance. The most unfortunate consequence of the largest investors all bound to the same indices, is that they are obliged to remain invested in the index constituents or risk drifting from the benchmark. This creates a herd mentality within the investment community and also distorts markets to a level of severe detachment from the real economy.
The course “ESG Portfolio Management” covers the dilemmas and conflicts of interest by indices and benchmarks. It will suffice to observe that many outcomes in the structured approach to investment management do not necessarily occur for the reasons that were initially predicted.