While some businesses across the world are in Covid-19 turmoil, a research note
from HSBC suggests that companies with strong environmental, social and governance (ESG) credentials are proving more resilient than their peers, according to a Business Green
article by James S Murray. The research note is said to show that "greener stocks' relatively impressive performance is largely holding true throughout the coronavirus crisis, presenting a good defensive opportunity for investors facing a worsening economic crunch", writes Murray.
The note by Ashim Paun, global co-head of ESG research at HSBC, says "within the stock market turmoil, shares of companies focused on climate change or ESG issues outperformed as the virus spread". Murray writes about HSBC's methodology: "HSBC analysed 613 shares of global public companies valued at over US$500m where climate solutions generate at least 10% of revenues, as well as the 140 stocks with the highest ESG scores and values above the global average." HSBC analysed the stocks' performance between 10 December 2019 (the start of the Covid-19 crisis) and 23 March 2020 and also between 24 February until 23 March when the crisis escalated, "sparking high levels of market volatility", says Murray.
In the early weeks of the pandemic, shares in "ESG-aware companies outperformed the market", albeit with some regional differences. "The climate-focused stocks outperformed others by 7.6% from December 2019 and by 3% since February 2020, while the ESG shares beat others by about 7% for both periods," Murray reports.
Paun is quoted on regional performance: "European stocks with higher ESG scores beat the regional equity index by about 6% since 10 December and by around 4% since 24 February, and the Asia-Pacific shares outperformed their region's index by 8.9% and 9.6% respectively ... However, the American shares underperformed their regional index by 0.5% since December and by 4% since February."
Murray says the hypothesis is that "companies with good governance practices and high levels of exposure to long-term growth markets, such as clean technologies, should find themselves better positioned to manage short-term economic shocks and subsequent recovery".
Business Green article
Sustainability is at the forefront of challenger bank bunq's commitment and this hasn't changed because of Covid-19, a Finextra article reports.
The Amsterdam-based challenger bank launched a Green Card in November 2019, an initiative that plants a tree for every €100 spent on the card. So far, over 100,000 trees have been planted, and the bank has now announced that it will extend this initiative across all its card offerings to plant at least 500,000 by the end of 2020. "Users will also be able to track the number of trees they planted in real-time on the bunq app," the article reports.
Founder and CEO, Ali Niknam, is quoted in the article: "We’ve noticed that our users' wish to build a greener planet hasn't been impacted [since Covid-19]. If anything, we've noticed a bigger appetite." The success of the initiative so far represents a reduction of 30.8 million kg in carbon dioxide – "the equivalent of 32,560 flights from Paris to New York", Niknam says.
What's in a name?
The European Commission has published its taxonomy
for sustainable finance, described on financial services company Banco Bilbao Vizcaya Argentaria's (BBVA) website as "a classification instrument to help financial players and companies determine which activities qualify as sustainable". The taxonomy aims to steer private capital to more long-term sustainable activities, according to BBVA.
Arturo Fraile, regulation manager at BBVA Research, says the taxonomy will help increase transparency and verify the extent to which specific activities contribute to the Paris Agreement objectives
, which is a legally-binding agreement to combat climate change.
The BBVA website says: "The taxonomy report, published on 9 March, defines the economic activities that substantially contribute to the first two goals: mitigation of and adaptation to climate change. It will be implemented by the end of 2021. A supplementary taxonomy that encompasses those activities that contribute to the fulfilment of the other four environmental goals is due in the coming months and will go into effect at the end of 2022."
The document also addresses the requirement to stop financial players from disguising themselves as sustainable when they aren't, and the Commission will require businesses to use the taxonomy to show to what extent their financial products align with it. The BBVA website adds: "In accordance with their approach, in the future, the Commission plans to introduce ecological labels to be used to classify available products."
The Commission, according to BBVA, believes that using the taxonomy in investment strategies should begin with companies segmenting the activities that a fund has invested in, followed by confirming which areas are eligible under the taxonomy. "Committing to those that are sustainable will contribute to the growth of sectors with low greenhouse gas emissions and to the decarbonisation of those that currently do emit large quantities of carbon dioxide," BBVA says.
Will the European Commission's taxonomy be enough to stop companies greenwashing their credentials? Leave your comments below.