ESG: The ‘equity vaccine’ during the COVID-19 induced market downturn?
In the aftermath of the COVID-19 crash in March this year, many were quick to point towards the superior performance of stocks that also had good Environmental, Social, Governance (ESG) profiles.
While we are strong advocates of sustainable and responsible corporate behaviour, one has to ask, was the enthusiasm about ESG as an ‘equity vaccine’ premature?
- The academic literature on the performance of firms with good ESG profiles during the COVID-19 market turmoil is mixed.
- ESG scores are not designed to identify investment opportunities, but rather to provide a holistic picture of firms as corporate citizens, making the identification of a link to financial performance difficult.
- Osmosis’ Factor of Resource Efficiency was developed as an investment signal. After accounting for other drivers of stock returns, Resource Efficiency was rewarded during the period from February 17th 2020 to March 27th 2020 and acted as an independent driver of risk-adjusted excess returns (alpha)