Quick Take: ESG Investing during the COVID Crisis

April 2020

The COVID crisis has drawn attention to many ESG themes

  • Social and Governance issues of immediate concern during the crisis include employee practices and cybersecurity.
  • Longer-term themes include societal inequality and regulatory appetite to intervene with respect to non-financial risks (now COVID, next climate?).

Poor ESG practices have been associated with weaker performance

  • We’ve seen meaningful differences in returns between best- and worst-scoring companies based on Environmental and Social criteria (top chart).  
  • Relative valuations of highly rated ESG companies have expanded during the current crisis (bottom chart). Such firms tend to have lower betas and more attractive quality characteristics.1

Acadian’s approach to ESG investing remains robust

  • Our proprietary ESG signals have performed materially better than widely available generic factors.
  • Our strategies have lower carbon footprints than their benchmarks, by roughly 50% and 30% in Developed and Emerging Markets, respectively.
  • The crisis hasn’t slowed our corporate engagement activities. We completed more than 1600 in Q1.

ESG factors have been relevant in the crisis

The ESG “value spread” has expanded

Top chart: Equal number securities per quartile. ESG scores are based Acadian’s proprietary factors. Cap weighted total returns from Feb 1 – March 31, 2020. Universe: MSCI World.
Bottom chart: Cap weighted 12-month forward Consensus P/E ratio for ESG Quartile 1 relative to ESG Quartile 4. ESG scores based on MSCI’s ESG Ratings. Universe: MSCI World.
Sources: Acadian Asset Management LLC, MSCI. Copyright MSCI 2020. All Rights Reserved. Unpublished. Proprietary to MSCI. The information provided is for illustrative purposes only based on proprietary models. It does not represent investment returns from actual trading or actual portfolios. There can be no assurance that the forecasts will be achieved.

1 Result is robust to controls for market beta and does not seem driven by energy prices declines.

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