Green stocks had a torrid time over the last couple of years as high inflation and higher interest rates made investments in these growth areas unprofitable.
The un-resolved (and probably un-resolvable) point whenever trying to establish a relationsship between ESG and financial performance: Is a company financially successful because they are "good at ESG" (however you want to meassure that) ? Or are they "good at ESG" because they can afford it (are financially successful) ?
In my view 'ESG' performance is highly correlated with operating performance. Good business practice is generally good ESG, so well run companies should - if theory follows - be good ESG companies in most instances. At a fundamental level, ESG (when defined and measured correctly) can't be really be separated from good operating practices. They're both measuring a similar thing, albeit from a different perspective. So for me, it comes back to the 'ESG metrics' used. Are quant ESG screens giving us good outputs? Are these outputs consistent? Can they be easily gamed? My answer to those questions is no, no and yes.
The definition of ESG has been perverted into a sort of measure of wokeness which can be easily gamed, rather than the framework for assessing fundamental business characteristics that it was originally conceived as.
The un-resolved (and probably un-resolvable) point whenever trying to establish a relationsship between ESG and financial performance: Is a company financially successful because they are "good at ESG" (however you want to meassure that) ? Or are they "good at ESG" because they can afford it (are financially successful) ?
True. It's a circular problem.
In my view 'ESG' performance is highly correlated with operating performance. Good business practice is generally good ESG, so well run companies should - if theory follows - be good ESG companies in most instances. At a fundamental level, ESG (when defined and measured correctly) can't be really be separated from good operating practices. They're both measuring a similar thing, albeit from a different perspective. So for me, it comes back to the 'ESG metrics' used. Are quant ESG screens giving us good outputs? Are these outputs consistent? Can they be easily gamed? My answer to those questions is no, no and yes.
The definition of ESG has been perverted into a sort of measure of wokeness which can be easily gamed, rather than the framework for assessing fundamental business characteristics that it was originally conceived as.