How Investors Can Produce Excess Returns with ESG Investing


Investors who ignore global environmental, social and governance (ESG) challenges are exposing themselves to unnecessary risk. This was one of the key takeaways from a recent webinar I hosted titled “How Should Investors Respond to the Changing ESG Environment?” The webinar brought together speakers from across the ESG universe, including asset managers, journalists, academics and analysts.

Climate change has an impact on weather patterns. Storms are becoming more frequent and hurricanes more violent. This year, Europe has been devastated by droughts and Pakistan has been devastated by floods. Hurricane Ian swept through Florida, causing billions of dollars in damage, and wildfires ravaged the global landscape.

Deloitte analysis shows that insufficient action on climate change could cost the US economy $14.5 trillion over the next 50 years. It’s just in the United States. The total overall cost could be much higher.

Webinar panelists discussed the cost of climate change and how investors should factor these headwinds into their calculations.

The cost of pollution

“I really think ESG is about managing risk so you can increase your ESG investment to increase your reward,” noted speaker Joan Michelson, ESG consultant and host and executive producer of the ELECTRIC LADIES podcast.

Speaker Cary Krosinsky, a leading author and sustainable finance advisor who also teaches at Brown, Yale and NYU, added that recent weather events are only accelerating the desire of companies and investors to improve ESG reporting. The trend is accelerating worldwide.

Southern Asset Management noted that while ESG reporting is relatively new in China, the asset manager is making solid progress in building an ESG database, the Southern Fund ESG Comprehensive Information Platform.

This database contains internal and external ESG rating data, rich underlying data, climate-related databases, litigation events, vote tracking and other multi-dimensional ESG information.

This database aims to improve ESG reporting in one of the most important


The goal of every asset manager is to find companies that will increase shareholder wealth over the long term. With environmental risks increasing year on year, it is becoming increasingly important for asset managers to focus on companies that contribute positively to the global climate.

Those who don’t could be left behind or could suffer significant financial consequences.

When analyzing potential investments for its ESG-focused portfolios, Southern Asset Management assesses “the logic of the profit model” for each company by evaluating positive and negative factors, such as social costs and emissions costs. of carbon.

Climate issues are one of the critical areas where different countries could find common ground to work more closely together in the future, the panel agreed. However, these countries will not be the only ones affected by climate change. The world needs to work more closely to build consensus on climate initiatives and improve business and government reporting.

Other Factors to Consider

ESG is not just about climate issues. It also involves social and governance issues, often overlooked by investors who tend to spend too much time focusing on the environmental factor.

However, social and governance issues are becoming increasingly important for companies and go hand in hand with the environmental issue.

Joan Michelson explained that the “beauty” of ESG, if done correctly, is that it takes all of these factors into account.

The speaker gave the example of ExxonMobil
, which recently added three new members to the board following pressure from shareholders to increase their climate disclosures. “It’s a valuable action that’s going to impact business decisions,” Michelson said.

Southern Asset Management is also trying to drive change by engaging with companies, said Lefeng Lin, fund manager at Southern Asset Management.

Using metrics compiled by its carbon emissions database, the company targets companies with large emissions footprints to help them gradually establish an ESG management structure. The overriding objective of this strategy is to help companies “avoid the negative impact that climate change may have on their operations”.

Cary Krosinsky also noted that increased social engagement and better corporate governance would help improve transparency, bring people together and, perhaps most importantly for investors, increase trust between shareholders and companies.

Beware of companies that green investors

Unfortunately, some asset managers have jumped on the ESG bandwagon and don’t do the detailed research needed to distinguish between companies that have really good ESG rankings and those that just green their investors. Some managers simply claim to do the work to grow the assets and collect the fees.

The panel agreed that one method of achieving outperformance through ESG investing is through detailed research and analysis, such as Southern Asset Management’s carbon emissions tracking.

Companies can play with ESG rankings when the criteria are well known and published. However, it is much harder for companies to outsmart the system when they don’t know what they are being judged on.

This is why a unique, tailored approach is so important and could help investors generate excess returns as the world becomes increasingly concerned about ESG factors and corporate compliance.


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