Friday Highlight  

Time to start pointing clients to ESG funds?

“This demonstrates how important just those two stocks are, compared to our energy underweight,” he says.  He believes that companies which are part of “the transition to a more sustainable global economy” like Cellnex and Thermofisher “are what drives performance”. 

Like Mr Clements, Masja Zandbergen who heads up sustainability integration at investment firm Robeco, feels that an advantage of ESG funds is their resilience. 

Ms Zandbergen says: “We see that being more exposed to companies with high return profiles and strong ESG strategies in place, such as within the healthcare and technology sectors, equates to greater resilience. The strategy avoids large investments in the more risky, cyclical sectors such as energy and financials, and this provides downside protection.”

Robeco places a lot of weight on companies with strong human capital management. This is another ESG related theme that Ms Zandbergen values highly in terms of sustainability, particularly during times of crisis. 

“Human capital development not only ensures that the company has the appropriate skill set to execute the business strategy," she says. 

"But it also improves talent attraction and retention, and employee motivation; and, as a result, productivity and the potential for innovation. Companies with good human capital management have invested in their employees and will be well served by having retained a well-trained and committed workforce when business operations are able to resume, we believe.”

Taskforce aims

The growing demand for companies to develop strong ESG strategies has been illustrated by the creation of the Financial Stability Board’s Task Force for Climate-related Financial Disclosures. The Task Force puts measures in place to ensure companies demonstrate sound ESG reporting rather than ‘greenwashing’. 

This is evidence that climate change accountability is being increasingly interpreted as a sign of financial stability.

In fact, it has led the Investment Association, whose members own one-third of the value of listed companies, to ask companies to explain in their annual report the impact climate change will have on their business model and how these risks are being measured and managed. 

Andrew Ninian is director for stewardship and corporate governance at the IA, says: “Climate change could result in a significant loss of value in companies if risks are not effectively measured and managed, ultimately hitting savers’ pockets.

"Companies need to be looking at the impact of climate change on their business, products and strategy and set out to investors how they are responding to these risks.”