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ESG Amplified BY GERALD CARTIGNY, MANAGING DIRECTOR, GOLDMAN SACHS ASSET MANAGEMENT (GSAM) BENELUX
One of the most difficult tests in modern history, the COVID-19 pandemic, has generated the deepest plunge in economic data on record. Within weeks, non-essential activity migrated from offices to homes and online, while workplaces that cannot operate remotely, have ceased or reduced operations for an indeterminate timeframe. How the pandemic amplifies the importance of ESG factors
resilience and ability to respond to an unforeseen shock.
As companies navigate the challenging
We believe companies managing ESG risks and opportunities are built on firmer foundations to brace and survive downturns.
environment, the spotlight is on social
Meanwhile, it is imperative that the
responses, with corporate actions
climate transition continues. We are
towards employees, customers,
monitoring how the coronavirus crisis
suppliers and broader society moving
affects corporate commitments to a
to the forefront of ESG analysis. Short-
decarbonized future. Cash-flow
term decisions, if managed well, can
challenges may lead to near-term
strengthen corporate foundations to
delays in climate transition projects,
enable survival through the downturn
but over the longer term we think
result in large supply-chain disruptions.
and ensure recovery in the aftermath
companies will continue to give green
In the UK, we have identified a retailer,
of the pandemic. Innovative social
investments the green light.
who, prioritizing the safety of its employees, closed its online store to
responses have the potential to build positive brand equity among customers
We believe companies managing ESG
reorganise its warehouse for social
and improve employee morale.
risks and opportunities are built on
distancing. However, the crisis has
firmer foundations to brace and
also highlighted shortcomings. For
survive downturns.
example, many large restaurant chains
Of course, some companies do not
in the US have limited sick pay policies
have the ability to limit the negative flows being severely dented by a sharp
Corporates rise to the social challenge
collapse in demand for their goods or
The pandemic has progressed analysis
services. As a result, we think good
of social issues from a value-based
We believe that effective management
corporate governance in the ‘new
approach to a key operational question.
of social factors has the potential to
normal’ will see heightened focus on
For example, health and safety – while
translate into investment performance,
capital allocation decisions, particularly
always important – are paramount
which is why they are embedded in our
those that may undermine a company’s
during a pandemic. Today, health and
investment analysis. This view is also
safety risks are particularly acute for
supported by research, with one study
consumer product companies, given
finding that companies with good human
continued, if not increased, demand for
capital management benefit from a
food, beverages and other consumer
lower cost of debt, higher credit ratings
products. Health and safety issues can
and lower stock price volatility1.
impact on key stakeholders, with cash
Figure 1: Equity returns may be linked to employee satisfaction
Equity returns may be linked to employee satisfaction Cumulative Excess Return* (%) 2011-2019
10.50 5.80
and their employees may not benefit from recent fiscal support.
0.70 -0.40
GSAM QIS: Equity Insights Strategies Our Quantitative Investment Strategies (QIS) team has recently seen
-16.70 1 (Bottom)
2
3
4
5 (Top)
Company Quintile Based on QIS Analysis of Employee Satisfication Source: GSAM, Glassdoor, Thinknum Alternative Data. Based on data for US large Source: GSAM, Glassdoor, cap companies. * Relative to the average return Thinknum across quintiles.Alternative Stocks are equally Data. Based weighted within quintiles.on data for US large cap companies. *
Relative to the average return across quintiles. Stocks are equally weighted within quintiles.
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FINANCIAL INVESTIGATOR
NUMMER 4 / 2020
heightened client interest in investment portfolio resilience to social pressures and concerns arising from COVID-19. Recent QIS analysis on the importance of social factors revealed higher employee satisfaction – as measured by Glassdoor ratings from Thinknum Alternative Data – can result in better equity returns as shown in Figure 1; this finding is consistent over time.