Goldman Sachs: “top-quartile returns companies with stronger ESG performance have seen meaningfully less returns erosion over time than high-returns peers with lower ESG scores. This underlines our point that ESG integration, when done well, is complementary and accretive to fundamental analysis rather than a distraction to it.”
“We believe that ESG can offer valuable insights on a company’s culture and risk profile, but only if done properly — i.e., with a narrowed focus on the most material factors in each industry, emphasizing measurable performance over vague policies, etc. What are the rewards for investors? We think there are potentially many, in terms of linkages with superior growth, profitability and lower cost of capital. One that we particularly care about in our process is the durability of returns on capital.”
Comment: This adds to the debate on materiality of various ESG factors. Read in conjunction with theacademic Prof. George Serafeim, Mozaafar Khan, Aaron Yoon paper : "Corporate.Sustainability: First Evidence onMateriality it points to the importance of a materiality assessment in this area.
View: This is similar to traditional finance metrics eg RoE (return on equity) today for biotech is usually not material or useful measure for investors or management. So no surprise that materiality for extra-financial metrics also need to be assessed.
Open question is how skilled an investor needs to be, to use this information effectively.
H/T Derek Bingham and GS Sustain Team Source: Goldman Sachs
More thoughts: My Financial Times opinion article on the importance of long-term questions to management teams and Environment, Social and Governance capital.
If you'd like to feel inspired by commencement addresses and life lessons try: Neil Gaiman on makingwonderful, fabulous, brilliant mistakes; orNassim Taleb's commencement address; or JK Rowling on thebenefits of failure. Or Charlie Munger onalways inverting; Sheryl Sandberg ongrief, resilience and gratitude or investor Ray Dalio on on Principles.
Cross fertilise. Read about theautistic mind here.