ESG: THE ‘EQUITY VACCINE’ DURING COVID-19 CRASH?

In the aftermath of the COVID-19 crash in March this year, many were quick to point towards the superior performance of ESG Stocks.

This post is issued by Osmosis (Holdings) Limited, a London based investment management group. For more information, please contact Lisa Harrison on 07716 912832 or [email protected]

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?


Summary

  • 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)

 

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Important Information

This document was prepared and issued by Osmosis Investment Research Solutions Limited (“OIRS”). OIRS is an affiliate of Osmosis Investment Management US LLC (regulated in the US by the SEC) and Osmosis Investment Management UK Limited (regulated in the UK by the FCA). OIRS and these affiliated companies are wholly owned by Osmosis (Holdings) Limited (“Osmosis”), a UK based financial services group. Osmosis has been operating its Model of Resource Efficiency since 2011.

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