ESG Research Update
/Martin Currie publishes new regular ESG report on current issues
Global equities manager Martin Currie is to publish a regular report, Stewardship Matters, on environmental, social and governance (ESG) issues, with the first edition published. The report will complement the company’s other publications on ESG challenges.
The first edition focuses overall on climate change, with clients stating that as their main long-term concern within the ESG space. The news, the report says, isn’t quite as bad as several years ago, with progress being made.
Stewardship Matters gathers information and views from Martin Currie’s portfolio managers, reporting back to clients via the report. The report is also a complementary publication to the company’s award-winning Stewardship annual report.
The report was authored by a team led by David Sheasby, Martin Currie’s head of stewardship and ESG.
Download Stewardship Matters in full (PDF)
Report: ESG Didn’t Immunise Stocks Against the Covid-19 Market Crash
Four academics have looked into the claim that ESG scores showed share price resilience during the COVID-19 crisis and subsequent market crash. There are several fund managers making those claims, including Morningstar, BlackRock and MSCI, for example, in August, Morningstar’s Global Sustainable Fund Flows report looked at 3,432 open-end funds and exchange-traded funds (ETFs) globally in Q2 2020, finding sustainable funds outperformed after the March market sell-off.
The researchers, led by Elizabeth Demers from the University of Waterloo, found that once industry affiliations and risk measures (accounting and market-based) were controlled for properly for each company, ESG scores can’t explain their returns during the pandemic.
The researchers found that ESG is insignificant in fully specified returns regressions for the first quarter of 2020 pandemic crisis period, and is weakly negatively associated with returns during the market’s ‘recovery period’ in the second quarter.
The research team wrote: ‘Industry affiliation, market-based measures of risk, and accounting-based variables that capture the firm’s financial flexibility (liquidity and leverage) and their investments in internally-developed intangible assets together dominate the explanatory power of the COVID returns models’.
Global financial crisis (GFC) data was used by the researchers to explain top and bottom decile performers (winners and losers), the used it to predict COVID winners and losers. Accounting and market-based models did well for both the GFC and COVID periods, but ESG didn’t really add much in real terms to the model’s performance.
In another test, hedge strategies that go long/short in stocks during COVID were developed based on proposed winners and losers from GFC models. Predictions saw abnormal returns, and yet again, ESG offered no benefits.
The researchers said: ‘We conclude that celebrations of ESG as an important resilience factor in times of crisis are, at best, premature’.
