ESG Insights: Trends, Analysis & Our Featured Chart #3

Volunteers wearing blue shirts with 'OCG Saving The Ocean' logos are collecting litter on a beach. A filled white trash bag stands nearby, and scattered trash covers the sand. The ocean, boats, and distant mountains form the background. The volunteers wear gloves and face masks, focusing intently on their task.
For financial professionals only

In this update we cover a recent sustainable investment survey, company director duties around nature-related risks and our own gender and diversity in fund management study. We also look at some negative news around growing profits from forced labour and Shell reducing its climate targets.

Here’s the key takeaways:

  • Most individual investors want to achieve a positive impact - according to a recent Morgan Stanley survey, most individuals want to achieve a positive social and environmental impact from their investments, and cite a lack of transparency and the potential for greenwashing as top concerns.

  • Company directors may have a legal duty to consider nature -related financial risks- a report by Pollination and the Commonwealth Climate Law Initiative argues that failing to identify and assess nature-related risks could lead to increased shareholder scrutiny and even legal consequences.

  • Record profits attained from forced labour - a  new International Labour Organisation report shows $236 billion in profits per year are generated from forced labour, with an increase of 37% between 2014 and 2021.

  • Shell waters down its emissions targets - Shell has reduced its carbon intensity reduction target from 20% to just 15% by 2030 and moved away from the supply of retail renewable energy.

  • Parmenion’s annual gender and diversity study published - our 2024 survey shows continued under-representation of woman and people from ethnic minority backgrounds in fund management, although some improvements are being made. More details can be found here

Featured chart

Bar chart titled 'World stock market performance as per ESG Risk from 01/02/2022 to 31/01/2024.' It shows performance of world stock markets based on Sustainalytics ESG Risk Classification. There are five categories on the horizontal axis: Negligible, Low, Medium, High, Severe. The vertical axis represents performance, ranging from 0% to 35%. The chart shows Negligible risk has around 7%, Low around 15%, Medium around 18%, High around 25%, and Severe has the highest at about 33%.

Source: Morningstar Direct, Parmenion. Cumulative returns for iShares World Index Fund in USD.

The graph above shows market performance over the last 2 years, with stocks separated by their ESG risk according to Sustainalytics. During this period, on average, performance increased in line with exposure to ESG risk.

Note: most stocks sit in Low, Medium and High categories with very few at the extremes either end. 

Why’s this worth sharing?

The graph helps illustrate the challenge ESG investing has faced over the past couple of years, as sectors subject to more controversies and greater ESG risk, like traditional energy and aerospace and defence, have outperformed.

However, over the last few months we have seen encouraging signs that this trend is reversing, and we are confident the reversal will continue, driven by short-term macro improvements and the longer-term transition to a low carbon economy.

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.  

Speak to us and find out how we can help your business thrive.