Goldman Picks Its Winners in the ESG Sweepstakes

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Intel Corp., Walt Disney Co., General Mills Inc., American Express Co., Amgen Inc. Five big names from five very different industries—yet they all have one thing in common: They are among a group of companies Goldman Sachs expects to benefit from the growing popularity of ESG investing.

$69.​9B Renewable power investment worldwide in Q2 2020 +0.​85° C Oct. 2020 increase in global temperature vs. 1900s average

50,​820 Million metric tons of greenhouse emissions, most recent annual data 74% Carbon-free net power in Brazil, most recent data

Hebi, ChinaMost polluted air today, in sensor range -16.​29% Today’s arctic ice area vs. historic average 0 6 5 4 3 2 0 3 2 1 0 9 0 5 4 3 2 1 .0 8 7 6 5 4 0 9 8 7 6 5 0 7 6 5 4 3 0 4 3 2 1 0 0 5 4 3 2 1 0 2 1 0 9 8 Parts per million CO2 in the atmosphere 0 3 2 1 0 9 ,0 4 3 2 1 0 0 9 8 7 6 5 0 9 8 7 6 5 Soccer pitches of forest lost this hour, most recent data

The bank’s analysts singled out 50 companies on the S&P 500 that should get a boost from money managers who increasingly use ESG criteria to pick stocks. The selections were based on an evaluation of environmental and social metrics, including everything from greenhouse gas emissions and waste management to gender diversity and child labor policies.

The analysts wrote in a report published last week that the impact of “E&S scores” on stock valuations “has increased sharply and is now the highest in five years.” Since the start of 2012, companies in the MSCI ACWI Index that are in the top quintile of E&S scores produced an annualized return of 11%, compared with 8% for companies in the bottom quintile, the Goldman analysts said.

In other words, it pays to be good.

Other companies spotlighted in the Goldman report were AT&T Inc., Starbucks Corp., T. Rowe Price Group Inc., Abbott Laboratories and Ball Corp., as well as Caterpillar Inc., Cisco Systems Inc., Best Buy Inc., KeyCorp and Kellogg Co. The Goldman analysts compiled their list while acknowledging that the data available to measure companies on environmental, social and governance prowess are far from reliable.

There are numerous obstacles. First, the definition of ESG itself is broad and ambiguous, making it difficult to assign a single rating to a company or compare sustainability across industries and sectors, the analysts wrote. Second, while the availability of ESG data has increased, the quality of the information remains uneven.

Still, money keeps pouring in. In the U.S., ESG-concentrated funds have attracted about $28 billion so far in 2020, compared with a combined $25 billion during the previous five years. ESG-focused exchange-traded funds drew $4.1 billion just last week, the most in at least a year, data compiled by Bloomberg show.

About 42% of financial-service professionals asked by Truvalue Labs said improved long-term returns were the main motivation for integrating ESG into the investment process. Risk mitigation was second at 27%, followed by demands from clients at 22%. The poll also said 70% of respondents expect climate change to be the biggest driver of ESG-related performance over the next three to five years.

Truvalue, which uses machine learning to uncover risks and opportunities from companies’ ESG behavior, found that most market watchers—72%—feel that the “S” for social is the most difficult factor to analyze and integrate. 

Sustainable finance in brief

  • Biodiversity is starting to get the kind of attention that’s become normal for global warming when it comes to so-called sustainable investors. It’s an effort, in the words of one fund manager, to “mainstream natural capital as an asset class.”
  • Tech stocks are getting shaky, which is bad news for all those ESG funds that rely so heavily on them.
  • Investors managing more than $9 trillion of assets have called on some of Europe’s biggest companies to include a climate impact assessment in their financial statements.
  • Believe it or not, there’s actually a secret club for billionaires who want to slow climate change.
  • When it comes to racial diversity in the workplace, the numbers show that most fund managers just don’t seem to care.

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More investors than ever are seeing the benefits of incorporating sustainability into their portfolio strategies. Join us for Bloomberg’s Sustainable Finance Week, Nov. 30 to Dec. 4—five days of virtual events and insight, designed to accelerate the mainstreaming of sustainable finance.

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