The CSR Portfolio — Meridiano's Mandate Under Constraint

A four-round, advanced sustainable-finance simulation set inside Meridiano Capital Gestores, an independent asset manager in Monterrey, Mexico (firm AUM ≈ MX$38,000M / US$2,100M). You run the desk on the flagship Fondo Responsable Global — a US$900M multi-asset sleeve (≈24% of firm AUM, the anchor client) benchmarked to a 60/40 global equity-bond index and reported in US dollars. The mandate is governed by FOUR simultaneous hard constraints: a contractual ESG-score floor of 65/100, weighted carbon intensity below benchmark, a 4.0% ex-ante tracking-error budget, and a 3.0% ex-ante VaR limit. On Monday 9 March 2026 a crisis package lands during rebalance week: an overnight MSCI rebalance plus two controversy downgrades drop the ESG score from 66.4 to 62.8 (breach; 10-business-day cure to Friday 20 March), Brent is +14% in eight sessions so the 9% Latin-American energy book (≈US$81M) has rallied but now carries reversal risk, carbon intensity has crept +8% over benchmark, tracking error sits at 3.7% (budget 4.0%) and VaR at 2.8% (limit 3.0%) — almost no headroom — and the fund is −65 bps YTD vs benchmark. Round 1: diagnose which constraints are breached, near-breach or slack, attribute the −65 bps gap, and identify the BINDING constraint. Round 2: cure the ESG breach by exclusion (divest the lowest-scoring names — fast, certain lift, but concentrates risk and realizes cost/tax) or integration/engagement (keep names on a stewardship plan and tilt into high-ESG, low-tracking-error positions), quantifying the tracking-error and carbon side-effects. Round 3: manage the US$81M energy exposure under the risk caps — trim to benchmark, overlay a hedge (futures / put spread) to cut downside without realizing gains, or rotate into lower-carbon transition names — each priced for market impact, carbon, and effect on tracking error and VaR. Round 4: defend the rebalanced book to the client investment committee, showing ESG ≥65, inside carbon, tracking error and VaR, with the before/after on Sharpe, tracking error, ESG score and max drawdown. The math operationalizes Zavaleta's CSR-and-financial-performance question — is the −65 bps a genuine ESG penalty or a hedgeable energy-factor underweight? — and punishes the five classic errors: sequential constraint-solving (curing ESG while blowing tracking error), riding the un-hedged energy winner into the VaR cap and carbon breach, blaming the screen instead of decomposing the factor bet, over-engineering a hedge whose 35–45 bps cost eats Sharpe, and presenting compliant numbers with no stewardship narrative. Lose control of all four constraints at once and the client triggers a US$900M mandate review.