ESG investing underperformed the broader market in 2022, but strategists at Citi think the segment could be about to rebound. Last year, the MSCI Europe Socially Responsible Investing index declined by 13.4% compared to the 8.9% fall in the broader MSCI Europe index. But Citi said ESG stocks — or those which take environmental, social, and governance factors into account — have historically shown resilience, with profit growth outpacing the broader market during earnings slowdowns.
On average, the stocks have outperformed the market year-to-date, a trend Citi believes will continue. Among the bank's picks, France's outsourcing firm Teleperformance and payment services provider Worldline had the biggest upside potential at 60% and 42%, respectively. Stifel equity analysts, who have a 58% upside price target on Teleperformance, told clients that the long-term growth prospects remained intact despite disappointing last quarter results.
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