ESG Factors Drive Shareholder Value

Written By Vignes Rajagopal

Dragon Argent look at the impact of environmental, social and governance factors on shareholder value.  Spoiler alert, the key takeaway is you really shouldn’t be engaged in, or supporting of, any activities that have a negative impact on our wider society or environment if you are looking to create long term shareholder value, either through investments or within your own business.
 
There are two recent case studies that support this.  Boohoo's shareholders saw £2bn wiped off the company's valuation in just 4 days when poor working conditions were exposed in their Leicester factory by The Sunday Times. 
 
At the other end of the spectrum, BP's shareholders saw their share price bounce 6.5%, despite reporting one of it's worst quarterly results on record, after unveiling plans to shift from fossil fuels towards low carbon energy within the next decade.
 
Other recent stats highlight this trend further:

  • Morningstar reported that $45.6bn flowed into ESG funds in Q1 of 2020, compared with outflows of $384.7bn from the broader fund landscape.

  • JP Morgan stated that 55% of global investors believe that the COVID-19 crisis will be a positive catalyst for ESG momentum

  • JP Morgan also say by the end of 2020 there'll be $45 trillion of AUM following global sustainable investment (SI) approaches

  • Charles Stanley & FE Analytics reported that in 2020 average returns on global SRI funds are up 2% where non-SR investments are down 3.6%

  • ABN AMRO revealed from 2016 - 2019 there was 15% more investment per month in companies with positive sustainability ratings than those with poor ratings.

Finally, BlackRock, the world’s largest asset manager, publicly identified 244 companies that haven’t addressed climate change adequately enough, either through their practices or disclosures to shareholders. BlackRock voted against directors at 53 of those companies and said it will vote against directors at the other 191 next year if they fail to make “significant progress” over the coming 12 months.
 
If you are looking to build a valuable, sustainable business, ensuring you have a socially responsible mission is quickly becoming a precondition for securing investment or building stakeholder value.  If you’d like to discuss how to drive long term value in your business, please get in touch.

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