“Environmental, social and governance (ESG) metrics have matured to the point where they can help mainstream investors beat their benchmarks,” says Derek Bingham, Head of Goldman Sachs SUSTAIN Americas.
Mr. Bingham and his GS SUSTAIN team study which sustainability measures most closely align with returns over time, seeking which diversity, emissions, governance or other suitable sustainable indicators position firms for long-term success.
He shares his team’s findings in the following Goldman Exchanges podcast, explaining why he sees ESG research as a long-term trend that isn’t going away.
“Metrics that Matter: A ‘Mainstream’ Approach to ESG” (Released May 8, 2017)
Notable Podcast Quotes
“There is enough data now that we can start looking over long periods of time, 3-5 years of time, multi-year periods, and look for some relationships with the stock price …if environmental and social performance do have an impact, it ought to show up in their operations and influence their stock prices. That’s what we found in our studies.”
“We increasingly think mainstream investors have to realize that this is more information, again, that they didn’t have already.”
“The roots of ESG investing came from ESG specialists. Folks that wanted to invest behind a certain set of values, wanted to focus on the ESG aspects of their companies. As a result of that emphasis, rightly or wrongly, ESG got a reputation perhaps of underperformance.”
“Low emitters based on total greenhouse gas and scope 1 emissions generally outperformed across our framework, logging 3.1% alpha in relevant sectors, though results were mixed for manufacturing sectors.”
“Employee turnover showed relatively strong and consistent performance across sectors.”
“Companies with higher levels of female employees have seen average annual alpha of 3.3% across all sub-sectors within our framework.”
“Does a company have a target? It tells you that a company has a goal of improvement, implies measurement, accountability. Examples include emissions reduction, resource efficiency, diversity.”
“Business ethics improvement tools [in firms] leads to alpha.”
“It’s challenging to do ESG in passives effectively. ESG is more an ideal category for active management – because it encourages customization and because data is imperfect.”
About GS SUSTAIN
GS SUSTAIN is a Goldman Sachs-branded equity strategy that seeks portfolio alpha through a comprehensive analysis of firms’ strategy, business model and ESG performance. The strategy was launched 10 years ago in 2007 at the UN Global Compact Leaders Summit.
Their team’s GS SUSTAIN research product is designed for and marketed to portfolio managers who seek sustainable superior returns on capital over a long-term horizon, while managing sources of risk faced by modern firms today.
Source: Exchanges at Goldman Sachs
