Whatâs Going On Here?Investors whoâve kept their hands clean with companies that score well on environmental, social, and governance (ESG) measures have found their portfolios currently look healthier than most. What Does This Mean?Like plenty of portfolios caught in the recent coronavirus-fueled stock market selloff, ESG investment portfolios have fallen this year â but only by around half the broader marketâs decline. Thatâs consistent with research from the worldâs biggest investment manager, BlackRock, which is ramping up its own socially responsible investments.
ESGâs supporters might argue the groupâs outperformance is because ESG-friendly businesses simply have better fundamentals than those in generic portfolios, thanks to policies that donât damage the planet. And while it remains to be seen how true that is â there are other reasons those companiesâ shares could perform well â it does seem like the exclusion of certain environmentally unfriendly companies has served them well⊠Why Should I Care?For markets: More like spoil companies.
Oil isnât a feature of most ESG portfolios, which means theyâve avoided the significant losses caused by the tumble in oil companiesâ stock prices this year. Thatâs been driven by the falling oil price: a barrel costs almost what it did in 2002. Lower demand for the black stuff amid declining economic growth is partly to blame, as is Saudi Arabiaâs decision to flood the market in its price war with Russia. And when oilâs cheap, the worldâs big producers canât make as much selling it â which has led their stock prices to fall.
The bigger picture: Not as bad as youâd think.
ESG investors might actually be surprised to find some energy companies are technically a good fit for their portfolios: their polluting effects might, for example, be offset by the gender balance of their boards. In fact, according to ESG screening platform Arabesque S-Ray, the average energy company ranks 50 out of 100 on environmental, social, and governance measures â a score that puts them above the average finance firm. | 