Environmental, social and governance metrics that were previously not assessed by fund managers in a consistent way, account for 85 per cent of the value of S&P 500 companies, according to Putnam Investments.
In an interview transcript released in February, portfolio manager Stephanie Henderson, said evaluating ‘intangible’ metrics such as corporate reputation and corporate culture can help investors better evaluate the worth of equities.
“Thoughtful ESG analysis helps investors assess the meaningful, intangible value of any business, such as culture or reputation,” she explained. “After 2008, we saw a drop in confidence in financial institutions. Investors are looking for reasons to trust the professionals who manage their assets and the processes that they use.”
Henderson said that investors are taking a greater interest in where their money is invested which is pushing asset managers to look more closely at ESG issues which now have a strong correlation with a company’s share price.
“Investors care about what they are invested in: They are thinking much more about longer-term sustainable growth and profitability, and ESG issues are important parts of that framework,” Henderson said.
“Many investors are recognizing that thoughtful ESG approaches can be additive to alpha, and help with risk mitigation. Like any type of investing, there are no shortcuts to generating those benefits, but the outdated idea that you have to choose between profits and environmental or social benefit is falling by the wayside.”
Putnam’s recognition of growing investor demand echoes the realisation of many of its competitors, which has led to asset managers spending considerable sums to improve their in-house ESG research databases for the investments that they hold.