Companies with favorable ESG factors have been proven to consistently outperform their less sustainable peers in terms of returns, volatility, cost of capital, and other key indicators. This is because these companies are forward-thinking, adaptive, and understand that the future will be low-carbon, transparent, and full of unprecedented risks. They cut costs with resource efficiency; they enhance their brand by engaging key stakeholders; and they find new innovative ways to gain product preference and market share.
ESG Goals :
Improve long-term returns
Creating a better world
ESG factors considered when evaluating a company:
- Environmental criteria: how a company utilized or abused limited environmental resources. Managing environmental resources helps control costs, avoid damaging incidents, and positions the company for tomorrow’s economy. Additionally, negative environmental impacts such as oil spills, mining disasters or misuse of water resources can be fatal, and the cost to shareholders can be severe. Companies that better manager their resources in the long run will outperform those that don’t.
- Social criteria: how it manages relationships with people: employees, suppliers, customers, and the communities where it operates. Treating people well benefits society but also helps a company attract and retain talent—critical in the gig economy. Better people and how they are treated make for a better company in the long term.
- Governance: how it manages company leadership, executive pay, shareholder rights, audits, internal controls, etc. Good governance leads to better corporate decision-making and these companies are likely strategic in nature—focused less on the short term and more on sustaining their investment. Poor governance and accounting controls can undermine the success of even great businesses characterized by sustainable competitive advantages and long-term growth prospects.
“If you can’t measure it, you can’t manage it.” – Peter Drucker
Managers that understand the importance of ESG information know that good business also means good sustainable business practices. Using ESG factors, they enhance their returns, better manage risks, increase enterprise value and yes, at the same time make the world a better place to live.
While there is no magic formula to avoid catastrophes, bad management, negligence, etc, we believe incorporating ESG analysis can help mitigate substantial risk, and improve long-term returns.
ESG Factors Help Find Companies That Are:
- Leaders in their industries
- Better managed and more forward-thinking
- Better at anticipating and mitigating risk
- Focused on the long term