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Global sustainable shares post record gains in 2021

By Reuters

<div> <p>By Patturaja Murugaboopathy </p> <p> – Stocks of companies rated highly for their sustainability efforts have registered record gains this year, boosted by growing awareness and investor interest in investments focused on environmental, social and governance issues. </p> <p>Data showed <span class="caps">MSCI</span> World <span class="caps">ESG</span> Leaders’ index has risen 23% so far this year, already its highest annual gain ever, compared with <span class="caps">MSCI</span> World index’s return of 14.4%.</p> <p/> <p>(Graphic on, <span class="caps">MSCI</span> World vs <span class="caps">MSCI</span> <span class="caps">ESG</span> Leaders index: https://graphics.reuters.com/GLOBAL-<span class="caps">MARKETS</span>/lgpdwoeyxvo/chart.png )</p> <p/> <p>Analysts said this outperformance should boost the confidence of investors who are concerned about the ability of <span class="caps">ESG</span> stocks to provide higher returns. </p> <p>Meredith Jones, partner and <span class="caps">ESG</span> expert at Aon said the outperformance of <span class="caps">MSCI</span> World <span class="caps">ESG</span> Leaders index should drive fund inflows into <span class="caps">ESG</span> stocks next year. </p> <p>“There are demographic, sentiment and regulatory shifts that are also driving investors towards higher <span class="caps">ESG</span> investments. I don’t expect these trends to abate in the near term,” she said.</p> <p>According to Morningstar data, global sustainable funds have already hit a record inflow of $508 billion in the first three quarters of this year. Their assets under management swelled to a staggering $3.9 trillion at the end of September.</p> <p/> <p>(Graphic on, Sustainable funds’ asset size: https://graphics.reuters.com/GLOBAL-<span class="caps">ASSETS</span>/znvnezrompl/chart.png)</p> <p/> <p>Global firms have been taking active steps to cut down their emissions and to diversify their board rooms to improve their <span class="caps">ESG</span> scores, as fund managers have started to focus on such disclosures.</p> <p/> <p>(Graphic on, Quarterly flows into sustainable funds: https://graphics.reuters.com/GLOBAL-<span class="caps">FLOWS</span>/byprjrydgpe/chart.png )</p> <p/> <p>Due to the rise in demand, shares of the firms with higher <span class="caps">ESG</span> scores have risen much higher than those with lower <span class="caps">ESG</span> scores in recent months.</p> <p>A Morningstar report this month showed shares of companies with low <span class="caps">ESG</span> risks are trading at a 7% premium to fair value, while stocks with severe and high <span class="caps">ESG</span> risks trade at 16% and 8% discounts to fair value respectively. </p> <p>The rally in <span class="caps">ESG</span> shares have also lifted their valuations overall, making them more expensive.</p> <p>The <span class="caps">MSCI</span> <span class="caps">ESG</span> Leader index’s forward 12-month P/E ratio stood at 21.1 at the end of last month, compared with <span class="caps">MSCI</span> World index’s 18.4.</p> <p/> <p>(Graphic on, Valuations of <span class="caps">MSCI</span> <span class="caps">ESG</span> index vs <span class="caps">MSCI</span> World index: https://graphics.reuters.com/MSCI-<span class="caps">ESG</span>/zgpomneenpd/chart.png)</p> <p/> <p>“While savvy <span class="caps">ESG</span> investors will be mindful of their overall asset allocation, … they may well be willing to increase the portion of that existing stock exposure to <span class="caps">ESG</span>, even if at the high end of valuations, given the shift in attitude and increased popularity of values-based investing,” said Manisha Thakor, founder at MoneyZen.</p> <p/> </div>