Gabelli100 | Apr 19, 2021 | Gabelli School of Business
ESG Paves the Way for a Sustainable Future
By Claire Curry
When the COVID-19 pandemic hit in early 2020, many thought the focus on environmental, social, and governance (ESG) criteria would die out as so many companies were struggling to survive. Instead, by the end of the year, global assets under management in the ESG category increased by a surprising 96 percent.
According to Neha Coulon, global head of ESG solutions at JPMorgan Chase & Co., ESG hasn’t seen a shift of that scale since the Paris Agreement in 2015, which brought 196 countries together to mitigate carbon emissions and tackle climate change. After the agreement, annual investment growth rose from roughly eight or nine percent to 25 percent annually, reflecting the public’s increasing concerns about environmental issues. The fact that just five years later it skyrocketed during a global pandemic proves that ESG is a top priority for today’s investors.
Coulon discussed the “stress test” that COVID-19 imposed and the impact of ESG criteria on business and investing in a recent Gabelli School Virtual Centennial Speaker Series webinar sponsored by the Gabelli Center for Global Security Analysis. Donna Rapaccioli, Ph.D., dean of the Gabelli School of Business, and Lerzan Aksoy, Ph.D., associate dean of undergraduate studies and strategic initiatives and managing director of the Responsible Business Coalition, joined the conversation.
ESG Data Drives Investment Decisions
ESG data is increasingly becoming a go-to tool for investors to determine whether a company is a sound investment. For example, algorithms can comb the web for media stories that could reveal potential controversies and proactively help portfolio managers steer clear of losses. Geospatial data can map a company’s factory locations to determine if they are vulnerable to extreme weather events.
At JPMorgan Chase & Co., Coulon is using a unique system that generates and reports data daily as opposed to annually. The system not only scans the internet for articles and media posts, but also ranks them according to reach.
“When we added faster-moving data, we saw that regardless of what kind of investor you are, you can get value, growth, and momentum,” she said. “If you added the ESG piece to it, you actually saw lower volatility and better risk-adjusted returns.”
The Corporate Impact
When Rapaccioli asked about ESG’s impact at the corporate level, Coulon attributed companies’ dedication to meeting sustainability quotas to three major changes: regulations on mandatory disclosures, investor involvement, and competition to see who can acquire the most assets from investment.
Overall, she noticed that companies are more willing to enter the market ready to make sustainability targets and add them to their financing structure, championing support from CEOs and ESG-specialized partners. Sectors of the market offering consumer goods are seeing a massive payoff as well.
“Sustainability marketed brands are growing at a significant five times faster growth rate, so even from a competitive perspective, companies are beginning to see value in incorporating sustainability into the offerings,” Coulon said.
Opening New Doors in the Job Market
Acknowledging the number of students who tuned in for the webinar, Aksoy wondered what the future holds in terms of ESG-related career opportunities. At the corporate level, Coulon stressed the importance of sustainability reporters and how they can help companies achieve quality investor relations by understanding what key sustainability issues particular markets face and what makes a business particularly strong.
Fund managers assist companies by investing in a small group within a sector to look at ESG criteria and determine how strong they are and whether they can boost those characteristics. Policy positions on the regulatory side are another pathway into the ESG space, Coulon said, but she encouraged students to find the aspects of the field that resonate most for them. She herself developed an interest in sustainability strategy while growing up in India where she witnessed the destructive side of rapid economic growth with unchecked labor and environmental standards.
“I think the purest ESG piece is going to be the risk and the consulting piece,” she said, “but if you don’t care about that and you get excited by financial markets, then maybe asset management is a better choice for you.”
Is ESG Investing in a Bubble?
Eventually, all investing will be ESG investing, Coulon said. While not directly tied to moral beliefs, she said that as people are more inclined to move away from problematic practices and scandals, more investors will take a company’s ESGs into consideration before buying in.
While there was a significant increase this past year, Coulon said that new regulations will control the ESG space, and companies are being nudged in that direction. She pointed to current trends that are moving companies closer toward sustainability, even in the most unexpected industries, such as auto and cement manufacturing.
“In a world where every one of the highest carbon-emitting industries are trying to figure out how they can decrease the overall carbon footprint, we think that both the investment from the corporate side, but also from investors, is going to continue,” she said. “I think those sectors are certainly going to continue to grow.”