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A drawback of ESG index-based investment strategies is that they:
Correct Answer: C
A drawback of ESG index-based investment strategies is that they rely on established datasets for construction that lack historical data. * Rely on established datasets for construction that lack historical data (C): ESG indices are often based on datasets that have only recently started to be compiled comprehensively. This lack of long historical data can make it challenging to perform back-testing and historical performance analysis, which are crucial for investment strategies. * Focus only on environmental factors (A): ESG indices typically encompass environmental, social, and governance factors, not just environmental ones. * Cannot accommodate factor-based investing styles (B): ESG indices can be designed to accommodate various factor-based investing styles, including value, growth, and others. References: * CFA ESG Investing Principles * Limitations and considerations in ESG index construction and usage