Mike Zaccardi, CFA, CMT

Environmental, Societal, and Corporate Governance (ESG) issues are top of mind among not only investors, but all stakeholders. I teach finance at the University of North Florida in Jacksonville, and something I stress to the students is that all stakeholders’ interests matter. Stakeholders can be a shareholder, certainly, but they can consist of workers, bondholders, customers, and suppliers & vendors.

Stakeholders demand that corporations act in an ethical manner. Of course, it is expected that companies exist to turn a profit, but they must do so with an ever-growing keen eye to their impact on the environment, society, and its employees.

A recent TruValue Labs study published by Bank of America/Merrill Lynch Global Investment Research showcases changes in ESG trends within the Utilities Sector. Interestingly, there is a higher priority on critical incident risk management versus emissions. Perhaps it is not surprising as the COVID-19 pandemic presses on.

Prior to 2020, there was a greater focus on the “E” piece of ESG. Stakeholders felt it was important that utility companies be more environmentally-friendly. Reduced carbon emissions and focusing on a shift to renewable energy and technology were what people want to see.

So COVID-19 continues to re-shape the corporate landscape.

Companies with the best ESG scores tend to beat the market, too. Critics argue that it simply a coincidence as the firms with top ESG ratings tend to be found in the Information Technology sector which has outperformed the S&P 500 for other reasons. Nevertheless, 'the money' is speaking.

Capital is flowing into companies that have the best ESG metrics. I look forward to presenting on this topic at the Fall 2020 North American Energy Markets Association conference in October. If you are in the industry, I recommend signing up for the event.

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Image source: Bank of America/Merrill Lynch Global Investment Research