The Intersection of ESG and COVID-19. Call hosted by Goldman Sachs to discuss the impact of the global pandemic and economic recession on ESG, with a focus on both the investor and corporate perspectives.
ESG Investing is the consideration of Environmental, Social, and Governance factors in
ESG Investing is the consideration of Environmental, Social, and Governance factors in
investment decision making.
Martin Whittaker of Just Capital discussed how the pandemic is emphasizing the importance of risk factors and relationships for corporations. As a nonprofit which surveys thousands of Americans in building their company rankings, they have found that the way corporations treat their workers and care for their safety has become critical. Given the health risks associated with COVID-19, this is not extremely surprising, however, Whittaker suggests that these are important measures to watch as America exits the crisis. In fact, things are looking good in this area. Whittaker explained that the is was positively surprised by the efforts of corporations in supporting their workers across the board. For instance, many executives took pay cuts to prevent or reduce layoffs. Overall, Just Capital has found that the need for authentic, accurate, and current ESG data about companies has grown. The investment market needs to move towards more perfect information.
Mark Wiedman of BlackRock discussed the relationship between ESG rating and corporate
success. Overall, Wiedman explains that BlackRock believes that America’s investment market is
undergoing major developments as firms respond to climate risk. Specifically, Wiedman claimed that 90% of sustainable strategies have outperformed their conventional counterparts. The relationship between financial performance and sustainability linked to risk factors outside finance explains this trend.
ESG ratings have become important pieces of data in choosing funds. For BlackRock, they are actively seeking sustainable strategies; in the last two years, the amount of money they have in global shares in sustainable strategies has multiplied sixfold. This is for two reasons; not only are companies with these conscious visions outperforming others, clients specifically state that they want their portfolio to contain risk-conscious companies. All in all, Wiedman finds that while priorities themselves in making investment decisions have not changed, their individual emphasis has. Echoing Whittaker, this crisis has increased the importance of strategy along with risk and human capital management.
The next speaker was Katherine Collins of Putnam Investments. First, she explained that ESG can
be defined and used in different ways, but the most important would be the Alpha generation, that is, the financial and nonfinancial performance and returns. Collins finds that in determining which sustainable companies to invest in, it is important to look at the actual purpose of the company’s ESG components. Is the company simply checking the box and filing paperwork, or is sustainability a core piece of the company’s strategy and product? This is very important. Interestingly, Collins also argues that looking at improvements in sustainability is crucial. A company may have been a huge carbon emitter, but if they are actively transitioning to renewable energy but have not passed ESG yet, they still may be a sound risk-conscious investment. Additionally, she explains the difficulty in measuring social elements; for instance, there is no real quantitative numeric to accurately measure and compare diversity in companies.
Thus, companies that are able to clearly communicate their strategies and why they are risk-conscious and sustainable are easier investments. Companies ought to look at sustainable investments as more than just a box to check and lots of paperwork but as key investments in their future.
Last, John Goldstein of Goldman Sachs sort of summarizes the whole presentation. COVID-19
reemphasized the importance of elements that ESG takes into account and demonstrated that it can
withstand even this crisis. He further supports that these sustainable companies are outperforming others, along with the idea that new business conversations are happening as risk is becoming a huge factor.
Sustainability needs to be a major part of corporate strategy and a company’s story. All things considered, Goldstein concludes that as the need for data has increased, so has the importance of taking into account risk factors. ESG is a legitimate factor in making investment decisions and has serious implications on the company’s future.