More Companies Are Making Noise About ESG

Big U.S. companies are increasingly talking up environmental, social and governance factors on earnings calls—and betting that investors increasingly concerned with social responsibility will reward them for it. Twenty-four companies in S&P 500 mentioned the acronym “ESG” on earnings conference calls between June 15 and Sept. 14, double the number that cited the term in the first quarter, according to FactSet.

That marks a huge increase from just two years earlier, when only two companies referred to ESG in the second quarter of 2017. But it still represents only 5% of the companies in the index. The financial sector had the highest number of companies mentioning ESG, followed by the real-estate and utilities sectors.

Delta Air Lines
Inc.

talked about eliminating single-use plastic products from its airplanes and lounges.

BlackRock
Inc.

said sustainable ETFs are a strategic growth area. Oil-and-gas producer

EOG Resources

Inc. cited its use of recycled production water in the Permian Basin.

That goodwill has yet to be reflected in the share prices of companies promoting ESG. The Xtrackers S&P 500 ESG ETF, an ESG-focused fund that draws from the universe of the S&P 500, has gained 2.8% since the fund’s inception in late June, roughly in line with the performance of the broad stock-market index. “As we go forward, there’s going to be more pressure on companies to do something about their climate-change story,”

Occidental Petroleum
Corp.

President and CEO

Vicki Hollub

said on the company’s Aug. 1 earnings call. There may be reason for executives to increasingly speak to the concerns of ESG-interested investors. A Jefferies white paper from earlier this year said assets managed in the U.S. under a sustainable, responsible or impact-investing umbrella have grown dramatically in recent years, to $11.6 trillion in 2018 from $8.1 trillion in 2016 and $3.7 trillion in 2012. (Jefferies noted that “ESG investing” is shorthand for a variety of approaches to allocating capital.)

Shannon Murphy,

a managing director overseeing equities content at Jefferies, said there has been a meaningful increase in public attention to environmental, social and governance issues. One contributing factor is a transfer of wealth to members of the millennial generation, who as a group are more focused on sustainability. Investment stewardship groups in the U.S. also are paying more attention to these issues. “We’re at the beginning of a sea change,” Ms. Murphy said. “It’s going to be really interesting to see those numbers grow over the next few quarters and years.”

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