Page 27 - Energize March 2021

VIEWS AND OPINION

investing in the last six months.” financing in the years ahead. What we have seen to date is the proverbial tip of the iceberg.
Outperformance, in the parlance of the Much more will follow especially once investors realise that there is no penalty for being
investor managers, refers to ESG funds sustainable. In fact, the opposite is likely to be the case. And when that reality sinks in
generating higher returns than the market – perhaps sooner than many expect – fossil fuels and any business with a heavy carbon
average. footprint will be shunned. The impact may be pervasive.
Moore says “This is a very significant Fossil fuels, like the internal combustion engine (ICE), have had a good run. But their best
change in the investing world. As a sell- days are behind them.
side provider to these buy-side customers,
I have changed my mind 180 degrees on With ESG, you can have your cake and eat it too
the importance of adding an ESG aspect to ESG, for those not familiar with the term, refers to environmental, social, and governance. It
our research.” captures sustainability and is sometimes referred to as ethical or responsible investing.
As an example of the new mindset, While the evidence is not totally conclusive – for one thing the definition of ESG is still
Moore added, “Just today Redburn evolving – several studies suggest that companies with better ESG scores have lower share
released a research piece on the cement price volatility and are expected to outperform the market as a whole, as the impacts of a
industry saying it is ‘uninvestable’ given its changing climate become more pronounced.
huge carbon footprint.” Other studies suggest that higher-scoring ESG companies tend to have the characteristics
In his letter to investors and CEOs in of higher quality businesses, including higher profit margins, more stable returns and
mid Jan 2020, Laurence Fink, the CEO of less employee turnover. The causation, however, is not entirely clear. Do ESG companies
BlackRock, pretty much said the same outperform because they are socially and environmentally responsible, do they attract more
when he wrote: dedicated staff, are sustainable enterprises more profitable, less volatile/risky, or some
“Climate change has become a defining combination or none of the above?
factor in companies’ long-term prospects.”, What is the evidence for such claims? Barron’s fourth annual ranking of big-cap equity
pointing out that “… awareness (about mutual funds which received an “above average” or “high” sustainability rating from Morningstar,
climate risk exposure) is rapidly changing, shows that ESG funds outperformed comparable funds with lower sustainability ratings.
and I believe we are on the edge of a Barron’s reported that the 189 actively managed funds which met those criteria returned
fundamental reshaping of finance.” 30% in 2019, just shy of the 31,5% for the S&P 500 index while 41% of the 189 funds beat the
More recently, JPMorgan Chase S&P 500 – far better than the 29% for big-cap equity funds overall which beat the index, and
announced details of its new climate up from the 39% of sustainable big-cap funds which beat the index last year.
commitments during its annual investor day Barron’s points out that this outperformance could be coincidence, since sustainability
in New York on 24 February. The bank said has pushed fund managers into high-quality growth companies. It also notes that the
that it will expand restrictions on and phase outperformance could be fleeting. What transpired in 2019 is not necessarily guaranteed for
out financing for coal mining and coal-fired the future. But then again, nothing is.
power as well as stop approving loans For now, Barron’s headline which read “Mutual Funds That Rank High on Sustainability Are
for new oil and gas drilling in the Arctic. Outperforming the Market” is as good as it gets. It said, “Maybe environmental, social, and
JPMorgan Chase will also expand clean governance investing is a sustainable strategy after all.” n
energy financing while sourcing renewable
energy for the company by the end of 2020. Acknowledgement
We are encouraged by these This article was first published by EEnergy Informer and is republished here with permission.
developments and expect a fundamental
shift towards ethical or sustainable Send your comments to rogerl@nowmedia.co.za

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