The fund manager of the Lazard Global Sustainability Equity Fund, Louis Florentin-Lee, lays out his three-point ESG investment strategy to beat his benchmark.
But indispensable doesn't necessarily mean affordable. Some of the world's most famous stocks that meet the environmental, social and corporate governance requirements for entry into green portfolios are trading at eye-watering premiums to the rest of the market, making some investors wary of buying into the likes of electric-vehicle maker Tesla.
Florentin-Lee doesn't rely on the stellar outperformance of some of the big-name, big-valuation stocks that seem to be a staple in many ESG portfolios, such as Tesla or Apple, although he does have a stake in Microsoft, according to the Lazard website. Investors have to go beyond merely filtering out companies with negative externalities and poor sustainability, Florentin-Lee said. Focus on the companies that really are doing good for the world and their shareholders and in a responsible way.
"We take the view that companies that can maintain high returns on capital outperform the market, because we think the market gets them wrong," he said. The law of competition is applied to these companies, predicting that companies making great returns attract competition, and eroding returns down over time, he explained. "We just think that that's simply an economic theory, but in reality - it's not true," he added.
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