Sustainable corporate engagement, as well as the integration of environmental and social issues cannot be considered a luxury for profitable and healthy companies in favourable and buoyant market conditions.
In addition to being financially successful, these firms are also sustainable and environmentally friendly in the global sense. Indeed, there is a reason why these companies are healthy and profitable. Namely, they have also integrated the stakes (i.e. the risks, but also the opportunities) of sustainable development at the highest levels of their governance bodies. Moreover, the respect of their stakeholders’ interests has generally also been fully integrated within the company. In times of turmoil and uncertainty (like those which we are experiencing today), investors and companies are asked to meet the needs of their stakeholders. As such, they have to adjust their portfolios, business segments, operations, etc. accordingly. In this context, the integration of ESG issues can grant a major competitive advantage.
Relatively expensive companies versus interesting investment opportunities at a lower price following the market correction.
After the recent market correction, investors have been eyeing the markets for investment opportunities. For example, after the drastic fall in oil prices, the oil sector certainly seemed rather attractive, especially when compared to other companies that have shown better resistance to the correction (e.g. companies that are generally more ESG-focused). Could there be a risk that ESG-focused companies will suffer because of supply and demand effect? Could it be that companies or sub-sectors that are typically underrepresented in ESG strategies will outperform their sustainable counterparts? Will a stock market rally hurt sustainable funds in relative terms?
No. This fear is neither justified, nor has it ever been substantiated over the medium- or long-term. Sustainable and responsible investments focus on investing with conviction, and with an eye on value creation in the medium- to long term. As a result, these investments are not meant to exploit ephemeral bubbles or consider temporary opportunistic acquisitions. On the contrary, they are designed to support companies in their winning strategy of value creation. In doing so, these sustainable companies take into account upcoming innovations and future opportunities, and anticipate all potential risks.
Towards a common language?
Numerous articles, comments and studies have highlighted the excellent performance of sustainable and responsible investments, and the notable resilience of sustainable companies. This is an important step in the integration of ESG factors in finance. Many claim to integrate these factors into their management processes. However, as those who are most involved on the topic of sustainability know all too well, this integration is neither easy nor universal. It demands rigour, discipline, critical analysis and in-depth research. Above all, it also requires the investor to engage in an active dialogue with its companies. If the crisis marks an additional infatuation with the movement and structural trend of the last decade, we hope that, most of all, it will lead to a shared willingness to speak the same language. Today, we already have initiatives that advocate a more unified and standardised corporate language on ESG. Unfortunately, like the extra-financial rating agencies, these initiatives are diverse and end up proposing different languages themselves. Regulators are trying to help. They not only try to ensure the transparency of information for investors in sustainable and responsible products, but also for the professional investor in sustainable and responsible companies. Regulation is constantly growing and is accompanied by a multitude of advantages and weaknesses. We will have the opportunity to further elaborate on this in the fourth article of this series. What is certain, however, is that these regulations are here to stay. Consequently, it matters little whether we believe that sustained commitment has become a crucial element of asset management. Regulation will likely have the last word.
