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What are we looking for?

Well-positioned ESG companies offering some respite during a global market downturn.

The screen

During the pandemic, we have seen large-scale economic slowdown and unprecedented market volatility, with markets dropping by approximately 30 per cent through March.

Amid this period of uncertainty and pessimism, we have begun to see the resurgence of environmental, social and governance (ESG) investment strategies. It appears the coronavirus has proved to be the perfect litmus test in showcasing, on a return basis, how important ESG could be for the investment world. Ashim Paun, HSBC’s co-head of ESG research, found that stocks that score highly on ESG outperformed others by approximately 7 per cent from Feb. 24, when high volatility began, to the March 23 bottom.

Story continues below advertisement

Today, we look at whether strong ESG companies are a viable way to reduce the impact of a market selloff.

  • As a proxy for global markets, we begin by setting our screening universe to the MSCI World Index.
  • Second, we screen for companies with a one-month return that was better than minus 30 per cent during the market selloff from Feb. 24 to March 23.
  • Next, we screen for companies with a Refinitiv ESG Score greater than 80. Refinitiv’s ESG Score is an overall weighted company score based on the self-reported information in the environmental, social and corporate governance pillars of a company. More specifically, we also look for companies that have: 1) a defined policy to improve employee and supply chain health and safety standards; and 2) where executive compensation is linked to sustainability targets.
  • Lastly, we narrow our global universe down to four sectors that dominate the MSCI World Index – financials, information technology, consumer discretionary and industrials.

More about Refinitiv

Refinitiv is one of the world’s largest providers of financial market data and infrastructure, serving more than 40,000 institutions worldwide. Refinitiv provides information, insights and technology that drive innovation and performance in global financial markets, enabling the financial community to trade smarter and faster, overcome regulatory challenges and scale intelligently.

What we found

Unsurprisingly, the screen yields predominately U.S.-based large cap tech firms. Microsoft Corp. and Cisco Systems Inc. were well positioned to benefit from the dramatic shift caused by the coronavirus to virtual office environments and the increased need for cloud storage capabilities. We’re also seeing these strong ESG companies coming to the forefront during the pandemic. Microsoft pledged to pay its hourly service workers regardless of whether their work hours are reduced during the outbreak, while Cisco has committed US$225-million (cash and in-kind) in response to COVID-19.

ESG has slowly turned from a qualitative talking point to an integral aspect of dissecting a company’s long-term sustainability as investors begin to look more closely at good governance, efficient supply chain management and treatment of the work force during this pandemic.

Investors are advised to do their own research before trading in any of the securities shown.

Select companies with strong environmental, social and governance scores

CompanyTickerGICS SectorMkt. Cap. (US$ Mil.)Recent Price *ESG Score1M Rtn. During Selloff (%)Div. Yld. (%)1Y Rtn. (%)
SAP SESAP-NInfo. Tech.141,820106.2894.5-24.01.414.7
Microsoft Corp.MSFT-QInfo. Tech.1,331,515175.0693.9-20.41.243.3
Alstom SAAOMFF-OTCIndustrials9,74439.7089.0-27.0n/a30.2
Cisco Systems Inc.CSCO-QInfo. Tech.180,40742.5488.0-21.43.4-22.2
Intel Corp.INTC-QInfo. Tech.253,32159.1887.6-19.72.23.0
HSBC Holdings PLCHSBA-LFinancials101,119399.3086.0-11.0n/a-34.8
Autodesk Inc.ADSK-QInfo. Tech.39,046177.8782.5-25.8n/a3.3
Intertek Group PLCITRK-LIndustrials9,8324,899.0081.9-26.12.1-4.1

Source: Refinitiv

*Recent price shown in native currency. 

Mansoor Elahi is a customer success manager supporting Refinitiv’s investment and advisory solutions.

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