It’s getting expensive for companies to ignore issues like climate change and sexual harassment.
Environmental, social and governance controversies have removed more than half a trillion dollars of value from the largest U.S. companies over the past five years, according to a study released earlier this month by Bank of America Global Research.
The bank looked at the stock prices of companies in the Standard & Poor’s 500 Index vis-à-vis 24 controversies ranging from accounting scandals to data breaches to sexual harassment, examining their peak-to-trough losses.
Actively managed ESG funds were the quickest to liquidate stocks when issues arose, the report said, adding that “ESG has been one of the fastest-growing strategies in recent years.” But it didn’t stop there, with other types of investors also reducing their exposures.
“The hit to market value of an ESG controversy is significant and the impact is long-lasting,” Savita Subramanian, head of U.S. equity and quantitative strategy and Bank of America, told the FT. “Negative headlines stick in investors’ minds.”
- ESG investing is no longer a niche market, with strategies that take these factors into consideration growing to more than $30 trillion in 2018, according to the Global Sustainable Investment Alliance.
- “I’m telling public company CEOs that I’m investing in today that three years from now their P/E is going to be affected by their ESG rating,” Cliff Robbins, founder of the $2.2 billion hedge fund Blue Harbour Group, said on CNBC in September.
- Researchers at Harvard Business School suggested earlier this year that financial statements should add line items called impact-weighted accounts to provide a quantifiable way to assess the impact that companies have on employees, customers, the environment and broader society.