Public Equities

ESG in Equities: Better Outcomes Require Better Practices

September 2020 – 10 min read
Not all approaches to ESG are created equal—why a focus on integration, forward-looking dynamics and active engagement is the key to unlocking long-term returns in equity investments.

Investors are becoming increasingly aware of the positive changes they can effect on significant global concerns ranging from climate change to human rights. Indeed, in recent years, the question of considering environmental, social and corporate governance (ESG) factors as part of fundamental equity investment analysis has progressed from whether to how. As a growing number of market participants—from consultants and financial advisers to asset managers—incorporate ESG into their decision-making process, asset owners are presented with a wide range of potential options for fulfilling their ESG requirements. 

Crucially, not all approaches to ESG are comparable, as they seek to deliver different outcomes. For example, while some asset owners may be willing to accept lower financial returns in order to achieve specific societal or environmental goals, others may only consider ESG from a risk-management lens. For asset managers, it is therefore imperative to understand the outcomes their clients are seeking. 

In this paper, we describe the philosophies at the heart of Barings’ approach—and why we believe they are the most effective at delivering the desired outcomes for our clients. We also demonstrate how they are implemented across our global equity platform.

Why Focus on ESG?

Before going into the specifics, it is worth noting why we focus on ESG to begin with. At Barings, we believe ESG analysis is critical for two overarching reasons. 

The first reason is economic return. Simply speaking, we believe taking ESG factors into consideration gives a holistic view of an investment. It allows our investment professionals to better assess both the potential risks facing the company and the opportunities presented to it, particularly those that may not be apparent or included in traditional fundamental analysis. Having a more complete picture is also crucial for improving our confidence in the investment thesis of a company. In particular, it strengthens our belief that our 5-year earnings forecasts will be delivered by the company. Furthermore, it helps our analysts to determine which of those factors may impact the value of the company over the time horizon. 

Second, and equally as essential, we aim to identify sustainable business practices and unlock opportunities for our clients while propagating better ESG practices and improved disclosure across the industries and businesses in which we invest. We strive to use our influence to create equitable outcomes and drive positive change, which is consistent with our commitment as signatories to the UN’s Principles for Responsible Investment and UN Global Compact.

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Dr. Ghadir Cooper

Global Head of Equities

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any forecasts in this document are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Any investment results, portfolio compositions and/or examples set forth in this document are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this document. No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments.

Investment involves risks. Past performance is not a guide to future performance. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

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