Is ESG bad for portfolio returns?
The amount of negative press about ESG may be a sign that we are nearing the peak of the current backlash against ESG investing. Will the peak in negative sentiment be reached around Donald Trump’s possible re-election in November?
Everybody seems to be ranting against ESG these days. Some posit that the excessive number, complexity and sometimes vagueness and inconsistency of the UN’s SDGs make of these just a sort of humanity’s wish list, a mere list of desirables which is not accompanied by a realistic and effective strategy.
While they might have a point, it is just another sign of the current shift of the pendulum against ESG not only in media but also in politics and financial markets.
Investors who until very recently were happy to pay irrationally high multiples for ESG assets are now treating these as kryptonite even at ultra-low valuations.
Not us. We don’t see ESG investing as a transitory fad but as a structural and long-term mega-trend which is here to stay. All our investment portfolios are SDG-focussed, mostly as a way to minimise regulatory risk and ensure long-term profit growth. But also to maximise long-term investment performance.
Much of the recent scepticism around ESG performance is caused by the swinging fortunes of the energy sector. In fact, when controlling for sectoral effects (and also for investment style such as value and growth) it seems that ESG factors do continue to ensure outperformance, as nicely showed in the chart.
