Environmental, social & governance issues are becoming increasingly relevant investment considerations.
Companies, especially miners, that have poor environmental track records can accrue huge environmental liabilities further down the road. This is a real-world financial impact that shareholders need to value correctly. Global ESG failures have been even more extreme than the SA examples readers will be more familiar with. Wirecard, a German financial technology company, misrepresented profits, forged contracts and inflated billions of euros in cash balances. Theranos, a health technology company, falsely claimed to have devised blood tests that required very small amounts of blood and could be performed rapidly using small self-developed devices.
While ESG’s impact on the world has been overwhelmingly positive, investors should be aware of unintended consequences. As more capital crowds into ESG-compliant sectors at the expense of noncompliant sectors, the returns from the former will decline. The more rigid one’s ESG policy, the more this effect will be felt.
The following can assist investors in deciding how they should choose a manager in light of their ESG beliefs: