Published: November 10, 2015
Big money managers are under mounting pressure to consider the environmental, social and governance (ESG) policies of the companies in which they invest. Many U.S. pension funds require asset managers to take ESG into account when investing their money , and some 1,418 asset owners, investment managers, and professional services firms have signed up to follow the U.N. principles for Responsible Investment. Together, these signatories control $59 trillion in assets under management, up from $4 trillion when the initiative launched in 2006. But the perennial question remains: Do ESG policies affect corporate-and share price-performance?
To find out, Credit Suisse recently scored the 40 largest mining companies in the world on five ESG-related factors – safety, the sustainability of commodity inputs, political stability and corruption in the countries where the company does business, the level of disclosure about corporate practices, and the carbon dioxide emissions, water usage, and electricity consumption associated with extraction. Among their findings: the higher a company’s ESG score, the lower its cost of capital. In other words, good corporate behavior does have its rewards. But do those rewards flow all the way down to a company’s share price? Not as yet. The analysts were unable to find a relationship between ESG rankings and actual stock price performance. Investors may care about ESG more than they ever did, but they clearly still care about other things even more.
Source: The Financialist