The investment analyst at Norz Patrimonia EA indicates the unstoppable progress of the responsible criteria as a key tool for protecting assets and anticipating structural transformations
The Sustainability criteria in corporate governance They have become among some selection criteria more relevant among investors Given the obvious materialization of the effects of climate change and social inequalities, to the point of becoming a KEY AXIS OF THE BUSINESS STRATEGYbeyond the regulation or cost that this may suppose and that can also enhance the profitability of an investment project or portfolio.
The ESG, from its acronym in English Environmental, Social and Governance (Environmental, Social and Governance) offers us an investment approach that goes far beyond the simple financial balance of a company; covering both the efficient use of resources, the impact on carbon emissions, transparency, work ethics or working conditions, among others. Together, apart from being in itself an excellent mechanism for the internal risk control of the company, they generate a high value, not only speaking in economic terms of profitability, but also speaking in terms of generation of human value and positive repercussion in our environment.
Long -term profitability: evidence from markets
In the economic profitability level it is evident that Investment in ESG companies will generate and generate profitability. Ignore it is not to adapt to a social and economic structural tendency that goes beyond the regulation itself, since in what are mainly focused on companies is in the efficiency and optimization of resources. And, although it is true that in the short term the investment requirement especially for some sectors will be high, in the length, The positive impact on profitability will be significant.
At the moment we have seen how some of these traded companies considered as ESG have had a market performance greater than that of the index itself. A remarkable case is that of Microsoftwhich has achieved emission neutrality, or also that of Schneider Electric in Europewho, apart from offering solutions for sustainable industry, also has a strong ESG commitment. Both companies They have consistently beaten to the indices.
Artificial intelligence, next ally of good governance
It is also necessary to understand how AI will fit in this whole trend. But what is clear is that it will be one of the main engines for companies, optimizing and automating processes and increasing productivity and decision making. In the coming years, we will see how companies begin to integrate it in their day to day and develop innovative solutions also focused on the correct governance.
How to invest in without complications
But how can we take advantage of this trend to make our heritage profitable? There are several ways to invest in companies positioned in this trend, although for the traditional patrimonial retail investor the easiest way to instrumentalize them is using investment funds.
In 2019, the “SFDR” was approved in the EU, the Regulation on the Dissemination of Information on Sustainable Finance that stands the ESG Impact Evaluation Criteria. It also categorizes investment products according to their results, differentiating them between article 6 (without sustainability objectives), article 8 (promote social and environmental initiatives) and article 9 (with explicit objectives of sustainability), so that in this way its rapid identification by investors is facilitated.
In addition, the companies creating traditional indices such as Morningstar, MSCI, Standard & Poor’s or Dow Jones, have also been set up in the Sustainability Train by building ESG indices with a selection of all those companies that meet these criteria. And managers such as Black Rock, Amundi, Vanguard, JP Morgan or Goldman Sachs have rushed in marketing funds that replicate these indices and also allow us to differentiate them between them.
As usual, in the world of investment we can choose between a wide range of ETFs or passive investment funds that replicate these ESG indices, or active investment funds that carry out their own selection of companies with such criteria. But yes, that in both cases they are categorized as article 9 or 8, which must be clearly specified in their corresponding commercial tab or brochure.
Nor should we ignore the fixed income market, which is also seeing how the green or sustainable emission market emerges strongly to finance projects that must be properly informed in its brochure; and that are in line with energy efficiency (green bonds), sustainability and social impact and in which we can invest in the same way through investment vehicles categorized as article 9 or 8.
Sustainability as a value lever
In conclusion, Sustainability has gone from being a complementary aspect to becoming a central pillar in the business strategy and in investment decisions. For companies, ignoring the ESG criteria involves assuming increasingly significant economic, regulatory and reputational risks. For investors, these factors are no longer only an ethical or social responsibility issue, but a key variable in the creation of value.
Incorporating ESG criteria in investment theses not only responds to greater environmental and social awareness, but also It translates into better risk management and alpha generation. In an environment where sustainability and profitability are increasingly interconnected, assets aligned with responsible practices are more likely to increase their long -term value.
Jordi Castany
Norz Patrimonia analyst