ESG in a time of crisis: Why ESG scores cannot mitigate risk

Focus should be on ‘intangibles' not ratings

clock • 3 min read
Jeremy Richardson of RBC Global Equity
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Jeremy Richardson of RBC Global Equity

When the coronavirus pandemic spread around the world in 2020, investors quickly grasped the gravity of the situation and a sense began to emerge that it was perhaps a moment when firms with strong environment, social and governance (ESG) would be less negatively affected than others.

It quickly became evident, however, that this was not the case. During the initial stages of the pandemic when equity markets fell, the established ESG indexes did not appear to capture the outperformance of ESG that many believed to be there. In fact, over the whole of the first quarter of 2020 the difference in performance between a number of ESG indices and the MSCI World Net index was less than 1%. This was astonishingly small. Particularly given the consensus that ESG would give a company that edge and offer an element of downside protection amid a drastically falling equity mark...

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