If investors are paying ever greater attention to environment, society and governance, there is a very simple reason: responsible companies deliver excellent performance.
"It is time for environmental, social and governance (ESG) criteria to become mainstream. It is no longer something you get drawn into by a few tree-hugging individuals. In the research process of any BlackRock team, we are increasingly making sure that ESG factors are taken into consideration." So says Isabelle Mateos y Lago, global macro investment strategist at BlackRock, the world's largest fund. If this is the state of affairs, there is a very simple reason: the most responsible and virtuous companies have, in recent years, been literally soaring on the stock market. To the delight of investors, who find themselves richly rewarded for having chosen the path of sustainable finance. This is the argument put forward in a lengthy Financial Times analysis.
The fact that ESG strategies deliver better performance on the markets is, according to the Financial Times, "beyond any doubt". This trend is particularly evident above all in emerging countries. The MSCI Emerging Markets Leaders index, which includes 417 companies with high ESG scores, has systematically outperformed the MSCI Emerging Markets benchmark since the financial crisis of 2008–2009. A gap that reached record levels in June of this year.
At the global level, the picture is the same. The FTSE Russell indices that track companies operating in energy efficiency, water-related technologies and other predominantly green sectors have delivered better results than their benchmark (the FTSE Global All Cap Index, which represents approximately 7,400 small, medium and large companies across 47 different stock exchanges).
All this attention to ESG factors, the London-based financial newspaper explains, emerged from the bottom up. Even before any single globally agreed definition of ESG existed, companies began taking steps to continuously improve their own standards, attracting investor capital. The latter are not (yet) required by any authority to choose the most responsible investment opportunities. Simply put, on the environmental side they seek to seize the opportunities offered by new clean technologies (renewable energy, electric cars and so on) and, at the same time, to protect themselves from the financial risks associated with climate change. On the social side, they are increasingly looking to exclude companies that focus solely on profit, turning a blind eye to the wellbeing of workers and communities. At the level of governance, they tend to cut out state-owned giants that do not engage with minority shareholders, companies that lack transparency, or those involved in scandals and conflicts of interest.
For investors, whose very mission by nature is to make a profit, all of this also has — and above all — economic value. "We are talking about not losing a lot of money," Isabelle Mateos y Lago explains to the Financial Times. "Anyone who invested in US coal in June 2014 had lost 85 per cent of their capital by the end of 2015." So much so that the list of investors who have opted for ESG finance keeps growing. In July, the Japanese pension fund, the largest in the world, announced that it would begin tracking ethical indices. Meanwhile, Swiss Re has shifted the monitoring of its holdings (130 billion dollars) onto ESG indices.