While there is a growing acceptance that a company’s ESG practices can affect its valuation and financial performance, tying the underlying factors together is rarely a straightforward process, as many factors relating to ESG are often subjective, and difficult to track and quantify.
Frequent and thorough company engagement, and the integration of rigorous ESG analysis into investment processes could offer investors unique insights into how different businesses are developing, and ultimately help them to better anticipate the risks and opportunities.
For investors considering a commodities allocation, the prevailing macroeconomic conditions have created an optimal entry point, in our view.
Although escalating trade tensions have introduced some near-term uncertainty in recent months, the structural case for investing in the asset class remains intact. Lower capital expenditure by commodity suppliers over the past several years portends a spike in commodity prices as global inventories are drawn down.
With capacity so stretched, any disruption resulting from natural disasters or geopolitical threats could cause commodities prices to spike.
Trade tensions, in conjunction with the chronic undersupply of commodities and the price inflation it implies, could bid up the value of commodity investments for as long as it takes capital expenditure in the commodity complex to recover.
Rising interest rates and low commodity prices are forcing greater discipline on capital spending among commodity producers, a factor that will likely serve to further tighten supply.
Active managers with the expertise to identify the most rewarding opportunities from a broad opportunity set, and the flexibility to use the most appropriate vehicle to exploit them, offer clear competitive advantages when investing in this asset class.
Terence Brennan is portfolio manager on the commodities team at Lazard Asset Management