Displaying items by tag: esg
Seem to you as if ESG’s lost a bit of its zest? You could just about be granted a mulligan for feeling that way, according to ey.com.
Then again, you might believe that, among some leaders, the rapid momentum’s taking five.
Here’s the bottom line: when any landscape altering thought process toward business like ESG surfaces, it can find its apex faster than a speeding bullet. Looking at the bigger picture, however, the mission critical relevance of sustainability and ESG in modern business and the corporate juice it sparked last season should be sent to separate corners.
A survey commissioned by Ernst & Young gauging the priority business placed on sustainability and ESG initiatives confirmed what many figured: ESG remains in the crosshairs of American execs. It also appears to pay dividends, heading every agenda.
During the past year, investment decisions based on ESG factors hasn’t exactly been looked upon fondly, according to webforum.org.
Factors such as the Ukraine invasion and inflation have fueled the negativity.
No matter; sustainability investing decidedly will remain a thing, abetting the segue to a future that’s not only greener, but struts greater sustainability.
In a Barron’s article, Lauren Foster discussed some ESG recommendations for 2023 from TD Cowen. The bank sees upside for ESG in 2023 due to an increasing focus on energy security, long-term decoupling from fossil fuel, and government-led investments in energy infrastructure. They identify six companies that offer the best combination in terms of ESG metrics and traditional investing factors: Air Products & Chemicals; Norwegian start-up FREYR Battery (FREY); Hannon Armstrong Sustainable Infrastructure Capital;Itron (ITRI), Piedmont Lithium (PLL); and Stem (STEM).
Air Products & Chemicals is the largest of these companies with a $66 billion market cap. TD Cowen notes its critical role in terms of boosting hydrogen production capacity which is a priority for the Biden Administration. It sees the company as being a potential leader in this space given its multiple projects throughout the Middle East and North America.
Notably, many of the companies on Cowen’s list are down considerably given the underperformance of growth stocks since interest rates started moving higher. While there are some headwinds for ESG investing due to a more polarized political climate, Cowen sees the long-term drivers of demand as only strengthening in the coming years.
Finsum: TD Cowen sees ESG picks as having upside in 2023. Here are 6 of its top selections.
In an article for CNNBusiness, Nicole Goodkind discussed some reasons why the ESG trend may have peaked and examines if it this is a positive development.
In Q1, total assets under management of ESG funds declined by $163 billion. And, this trend has continued in Q2. This is despite ESG funds modestly outperforming the broader market.
A major factor is that inflows into energy stocks picked up following the war between Russia and Ukraine. Another is that ESG investing is becoming a political issue with many conservative states looking to ban use of ESG considerations in investment decisions by state-run funds.
According to Robert Jenkins, the head of global research at Lipper, ESG investing as a seperate entity will likely be phased out. Instead, ESG ratings will simply be another metric to evaluate investments.
He sees ESG investing evolving into a more mature phase. This phase will be less hype-driven and politically contentious. Instead, the focus will be on standardazing data and ratings so that investors can make better decisions. Overall, it could certainly be positive as it would dissuade companies from ‘greenwashing’ to game ESG ratings, while still allowing investors to include these factors in their decision-making process.
Finsum: ESG investing may have peaked in terms of popularity especially as it’s become a political target. However, the trend may be moving into a more mature phase.
In an article for Bloomberg, Marvin G. Perez covered Florida Governor Ron DeSantis’ latest move in his war against ESG. Lately, the movement for institutional investors to consider environmental, sustainability, and governance criteria in their investments has drawn criticism from conservatives.
Florida is increasingly the frontline for these political battles, so it wasn’t surprising to see the Republican-controlled State Senate approve a bill to abn state and local governments from using ESG criteria in making their decisions. Last month, the legislation passed the State House of Representatives and is expected to be signed into law by DeSantis soon.
DeSantis is looking to consolidate support as he is widely expected to enter the 2024 presidential race. He and others have criticized ESG investing as an overreach and symptomatic of ‘woke capitalism’. So far, Florida has pulled $2 billion from Blackrock funds which many consider to be the vanguard of the ESG movement.
The legislation also bars municipalities from selling bonds that are connected to ESG projects or ratings. Last year, Florida sold about $13 billion in bonds, making it the fourth-largest issuer in the country.
Finsum: Florida is increasing its efforts to combat ESG with the State Senate approving a bill that bars state and local governments from using ESG criteria in investments and selling bonds.
In an article for AdvisorPerspectives, Larry Swedroe of Buckingham Wealth Partners discussed the conundrum of ESG investing. In essence, the asset class is currently outperforming which many are interpreting as a validation of ESG’s promise.
Yet, Swedroe contends that this conclusion is incorrect, since it doesn’t include the effect of increased inflows. In fact, a recent study from Norway’s oil fund revealed that non-ESG stocks actually delivered superior returns over a longer time period. One potential explanation is that inflows lead to increased valuations for ESG stocks, while it leads to depressed valuations for non-ESG stocks.
Another explanation for the conundrum is that ESG stocks are less risky, because they on balance tend to have higher compliance standards and risk-management protocols. In the long-term, stocks with higher risk profiles tend to have better returns albeit with increased volatility.
Companies with higher ESG scores also tend to be larger than companies with lower scores. This is another complicating factor as smaller companies tend to deliver higher returns over the long-term due to the risk premium.
Overall, investors should understand that ESG outperformance is likely to be a short-term phenomenon due to the surge of inflows. Over the longer-term, the asset class could see lower returns due to a lower risk premium.
Finsum: ESG investing is booming, and many believe the asset class will continue to outperform. Larry Swedroe explains why it’s not so simple.