• Impact investing is rapidly evolving as demand grows and data is increasingly available. • Strategies that utilize ESG (environmental, social and governance) factors generate comparable returns with less risk, according to several recent studies. • Companies with an improved ESG score, or which exhibit “ESG Momentum,” tend to outperform the market. In the following pages, we provide an overview of the expected returns for strategies that HPSKDVL]H (6* IDFWRUV GHOYLQJ GHHSHU LQWR WKH EHQHÀWV RI (6* PRPHQWXP The desire to integrate values and investment decisions has long been important to Glenmede clients and is a movement that has gained permanency. Research shows that when implemented thoughtfully with active management, impact investing can achieve social goals, as well as produce competitive and even excess returns over a benchmark. ,PSDFW LQYHVWLQJ LV D GHHS DQG JURZLQJ ÀHOG WKDW FDQQRW EH JHQHUDOL]HG Data availability and investor demand have led to innovative solutions to meet impact investing needs. For centuries impact investing was characterized through the lens of negative screening—the act of excluding stocks or industries from an investment portfolio. Demonstrations of negative screening are found throughout history with religious organizations taking a stance against usury as early as 600 BC and slave trade in the 1700s. As the power of negative screening gained traction, the word “divestment” entered the investor lexicon. Divestment, which is the intentional withdrawal of capital to effect social change, ZDV DQ LQÁXHQWLDO IRUFH LQ GLVPDQWOLQJ WKH DSDUWKHLG V\VWHP LQ 6RXWK $IULFD DV ZHOO DV GXULQJ WKH &LYLO 5LJKWV movement in the United States and currently, in the global focus on climate change. As investors and markets have evolved, so has the interest in identifying creative means of expressing values through investment choices. This has culminated in terms like “ESG integration” and “positive screening.” ESG integration utilizes environmental, social and governance factors help select environmentally friendly and socially aware companies that also implement solid governance policies. The speed with which ESG investing has gained mainstream appeal is remarkable, as evidenced by the 76 percent increase from 2012 to 2014 in total U.S.-domiciled assets under management. 1 Accelerating the Momentum toward ESG (Environmental, Social, Governance) Source: US Trust (2014). 1 US SIF (2014)
8
Embed
Accelerating the Momentum toward ESG (Environmental ... · at some future date, reap the rewards that come with better governance, better employee relations and better environmental
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
• Impact investing is rapidly evolving as demand grows and data is increasingly available.
• Strategies that utilize ESG (environmental, social and governance) factors generate
comparable returns with less risk, according to several recent studies.
• Companies with an improved ESG score, or which exhibit “ESG Momentum,”
tend to outperform the market.
In the following pages, we provide an overview of the expected returns for strategies that
Data availability and investor demand have led to innovative solutions to meet impact investing needs.For centuries impact investing was characterized through the lens of negative screening—the act of
excluding stocks or industries from an investment portfolio. Demonstrations of negative screening are found
throughout history with religious organizations taking a stance against usury as early as 600 BC and slave
trade in the 1700s. As the power of negative screening gained traction, the word “divestment” entered
the investor lexicon. Divestment, which is the intentional withdrawal of capital to effect social change,
8 Nagy, Zoltán, et al. (2015)9 Khan, Mozaffar, George Serafeim, and Aaron Yoon (2015). Reference the appendix for a complete list of material and immaterial
issues broken out by industry.
Impact Investing At A Glance Page 6
Why has ESG momentum generated these results? Perhaps companies with improving ESG scores will,
at some future date, reap the rewards that come with better governance, better employee relations
and better environmental policies, giving momentum investors an early signal of the payoffs associated
with prudent management decisions. Or ESG Momentum could be an indication of a small, less mature
organization evolving into a large, mature company. As organizations move through the corporate life
earn competitive returns without compromising their values.
*OHQPHGH·V�UHVHDUFK�FRQÀUPV�WKH�DOSKD�SRWHQWLDO�
of ESG Momentum strategies. Our back tests
suggest that an ESG momentum strategy, which
maps material and immaterial issues, could have
outperformed from 2007-2015 (Figure 8).
Glenmede research also indicated that alpha
generated via ESG momentum has a low
correlation with other more traditional alpha
factors, suggesting that it may be worthwhile
to consider ESG momentum side-by-side with
traditional investment factors.Source: Glenmede, MSCI.
Note that the ESG Momentum is an equally weighted composite of top 100
stocks with the greatest improvement in ESG scores, as indicated by MSCI,
over the prior 12 months.
* Back-tested results do not represent actual performance and should not be interpreted as such. Back-tested results have inherent
� OLPLWDWLRQV��LQFOXGLQJ�WKH�LPSDFW�RI�PDUNHW�IDFWRUV�RQ�VHFXULW\�VHOHFWLRQ��%DFN�WHVWV�UHO\�RQ�WKH�EHQHÀW�RI�KLQGVLJKW��D�FKDQJH�LQ�� � factors viewed as material could materially alter results.
*
Impact Investing At A Glance Page 7
SASB Sustainability Map: Comparing “Material” or Relevant Sustainability Issues across Different Industries.