Companies with above average sustainability profile held up better during the first month of the corona crisis. The crisis thus confirms the importance of ESG integration not only from a climatic and social perspective, but also from a financial perspective.
‘Long-term trends such as population growth, an ageing population and the loss of biodiversity have not changed. There is nothing new under the sun in this respect,’ says Robeco’s head of ESG integration Masja Zandbergen (pictured). ‘But this crisis does confirm once more that sustainable development is our future. What counts most now is our response to this crisis.’
As the crisis hits companies’ revenues and profits, Robeco has special attention for the remuneration of management, dividend payments and share buyback programmes, says Zandbergen.
‘We are already seeing companies considering to increase [fixed] pay to keep managers motivated. We don’t like this, as employees are at risk of losing their jobs and shareholders are forfeiting dividends.’
This importance of stakeholders
As far as Zandbergen is concerned, company stakeholders also include the various links in the supply chain. She refers to the declaration ‘Purpose of a Corporation’ signed by 181 CEOs in the US in August 2019. In this declaration the CEOs promise to manage their company in such a way as to benefit all stakeholders: customers, employees, suppliers, societies and shareholders.
With this crisis, time has come to prove that they are serious, says Zandbergen. ´We believe companies should maintain good relations with their suppliers and customers wherever possible. We want them to comply with contractual obligations as much as possible. For example, cancelling orders that have already been taken into production is not an example of responsible behaviour. It’s shifting the burden to your supplier. And the deeper you get into the supply chain, the more vulnerable people are.’
Financial perspective
Zandbergen believes that this is not only important from a social perspective, but also from a long-term financial perspective. ‘If you have good relationships with your suppliers, you will also be able to return to normal production more quickly.’
Sustainable companies perform better
Research by Fidelity also showed that sustainable stocks have so far fared better in the crisis than less sustainable companies. Based on their own ESG rating methodology, they assessed 2689 companies. The rating runs from A to E, with A being the highest score.
The data show a positive correlation between a company’s market performance and its ESG-rating, even during a crisis. Equities and bonds of companies with the highest ESG ratings (A and B) on average outperformed those with average (C) and weaker ratings (D and E) in the 36 days between 19 February and 26 March 2020.
The S&P 500 fell by 26.9% over this period. Meanwhile, the share price declines of companies with a high Fidelity ESG-rating was below the average, while those with a rating of C to E fell more than the benchmark.
A-rated companies outperformed the S&P 500 by 3.8 percentage points on average, while E-rated companies underperformed the S&P 500 by 7,4 percentage points on average over the period considered.