Hope you are doing well and staying safe. Welcome back to our brief thoughts on ESG. This week I’d like to comment on whether investors with a long-term mandate (and particularly those with ESG commitments) could have a positive impact on the ripple effect of the COVID-19 pandemic.
Portfolio managers are by definition stewards of capital. Because of this, they have direct and indirect impacts on what companies do over time. Through their investment decisions they can pressure companies to do or stop doing things. In a crisis, the way investors react may dig a deeper hole for some companies, which may force them to do things they wouldn’t have done otherwise (think of a company firing employees in the midst of an economic crisis because its cost of equity and cash liquidity dramatically changed as investors worried about the short-term stock performance of a given industry).
Is there a way to make investors keep their eyes on the long-term trends and not react to potential short-term price disruptions? Because this would allow companies to act as long-term ongoing concerns and treat their employees, suppliers, and communities in a way that doesn’t create additional pressure points to the ones that will be unavoidable (the ones that will come from changes in our lives that are possibly not going away once the pandemic is more under control). This idea aligns well with the concept of Socially Responsible Investing.
Johanna Kyrklund, CIO and Global Head of Multi-Asset Investment for Schroders, recently wrote a piece on how investors should act in a crisis. In a nutshell, she advises to act calmly and rationally. Focus on a long-term investment strategy and stick with it. I agree with this conceptually. While it’s only natural that investors look for alpha trying to outperform the market in every situation (their economic incentives most of the time aligns them to do this), it’s also true that if long-term investors only react to true in-depth structural changes, the pain for a lot of stakeholders would be less. The UN PRI is actively working with its signatories to develop thinking on what responsible investors should do in this pandemic. We think their recommendation (posted here below) are worth reading:
“Immediate investor actions
Action 1: Engage companies that are failing in their crisis management
Action 2: Engage where other harm is being hidden behind, or worsened by, the crisis
Action 3: Deprioritise engagement on other topics
Action 4: Publicly support an economy-wide response
Action 5: Participate in virtual AGMs
Action 6: Be receptive to requests for financial support
Action 7: Maintain a long-term focus in investment decision making”
Larry Fink, also expressed similar thoughts in a recent letter (which you can read here):
“I have always believed in a long-term view. I have advocated for it in letter after letter. And I believe long-term thinking has never been more critical than it is today. Companies and investors with a strong sense of purpose and a long-term approach will be better able to navigate this crisis and its aftermath.
At BlackRock, we take a long-term view of markets, and we take a long-term view in the way we run our company. The world will get through this crisis. The economy will recover. And for those investors who keep their eyes not on the shaky ground at our feet, but on the horizon ahead, there are tremendous opportunities to be had in today’s markets.
BlackRock’s biggest responsibility – now more than ever – is to help our clients navigate this market environment and stay focused on long-term returns.”
Not only is the CEO of the world’s largest asset manager talking about focusing on the long term, but also he is talking about purpose and the responsibility that comes with managing other people’s money. As more leaders in the investment world discuss these concepts, it’s likely more funds will follow suit and behave more rationally.
As for companies, William Upshur from the Palladium Group published a study where it showed that during the 2007-2009 recession, “companies that put sustainability at the core of their operations actually weathered the recession better than those that did not.” What this means is that companies that truly behave in way that optimizes the benefit for all the stakeholders will outperform over time (i.e. companies that treat their employees and suppliers well over the crisis, and not focus only on keeping investors looking for guarantees on returns happy). And, again, we think investors can help kick-start this positive cycle.
Hope this was of use. As usual, if there is anything we can help you with, please reach out. Also, don’t forget to recommend any ESG subject matter that you would like us to research and put in a forthcoming weekly
Regards,
Marimar
Partner, Miranda ESG
This week’s recommended reading
- ESG Stock Resilience Is Paving the Way for a Surge in Popularity
- Keeping a Close Eye on ESG Issues to Minimize Risk during the COVID-19 Pandemic
- Capitalism rewired: why we must rethink how performance is measured
- The power of collective investor action
- RI Survey: Pandemic could be tipping point for ESG
- Are ESG and sustainability the new alpha mantra?
- Coronavirus Pandemic Could Elevate ESG Factors
Contacts at Miranda Partners
Damian Fraser
Miranda Partners
damian.fraser@miranda-partners.com
Marimar Torreblanca
Miranda ESG
marimar.torreblanca@miranda-partners.com
Espero que este correo te encuentre bien y bienvenido de nuevo a nuestros emails sobre ESG. Esta semana quisiera hablar de cómo los inversionistas con mandatos de largo plazo (en particular aquellos que tienen compromisos ESG) pudieran tener un impacto positivo en el efecto dominó de la pandemia de COVID-19.
Los portfolio managers son por definición quienes dirigen los flujos de capital. Por ello tienen impactos directos e indirectos en lo que las empresas hacen a lo largo del tiempo. A través de sus decisiones de inversión pueden presionar a las empresas a hacer o dejar de hacer cosas. En una crisis, la forma en la que reaccionan los inversionistas puede profundizar el problema para algunas empresas, lo cual puede forzarlas a hacer cosas que no hubieran hecho de otra forma (pensemos en una empresa que despide a sus empleados a media crisis económica porque su costo de fondeo y liquidez cambiaron dramáticamente porque los inversionistas se preocuparon por el desempeño de corto plazo de las acciones de una industria en particular).
¿Existe entonces una forma de hacer que los inversionistas mantengan la visión en tendencias de largo plazo y no sobre-reaccionen a disrupciones en los precios de corto plazo? Porque esto permitiría que las empresas actuaran como entidades de largo plazo también y por ello trataran a sus empleados, proveedores, y comunidades de una forma que no creara puntos de presión adicionales a los que será imposible evitar (los que vendrán de cambios en costumbres que posiblemente no regresen a su estado anterior cuando la pandemia ya esté controlada). Esta idea está alineada con el concepto de Inversión Socialmente Responsable.
Johanna Kyrklund, CIO y Global Head of Multi-Asset Investment de Schroders, recientemente escribió un artículo sobre cómo deben actuar los inversionistas en una crisis. En pocas palabras, su consejo es actuar de forma calmada y racional. Enfocarse en una estrategia de inversión de largo plazo y no hacer cambios bruscos de la misma. Estoy de acuerdo con esto conceptualmente. Claramente es de esperarse que los inversionistas busquen generar Alpha para ganarle al mercado independientemente de lo que esté pasando en el mismo (sus incentivos económicos están alineados a eso). Pero también es cierto que si los inversionistas de largo plazo dejan a un lado esta idea y reaccionan únicamente a cambios estructurales de fondo, los problemas para muchos grupos de interés serían mucho menores. El grupo de PRI de la ONU está activamente trabajando con sus signatarios para desarrollar ideas sobre qué es lo que los inversionistas responsables deberían hacer en esta pandemia. Creo que vale la pena leer sus recomendaciones inmediatas (las pongo aquí abajo):
“Immediate investor actions
Action 1: Engage companies that are failing in their crisis management
Action 2: Engage where other harm is being hidden behind, or worsened by, the crisis
Action 3: Deprioritise engagement on other topics
Action 4: Publicly support an economy-wide response
Action 5: Participate in virtual AGMs
Action 6: Be receptive to requests for financial support
Action 7: Maintain a long-term focus in investment decision making”
Larry Fink, también expresó pensamientos similares en una carta reciente (la cual se puede leer completa aquí):
“I have always believed in a long-term view. I have advocated for it in letter after letter. And I believe long-term thinking has never been more critical than it is today. Companies and investors with a strong sense of purpose and a long-term approach will be better able to navigate this crisis and its aftermath.
At BlackRock, we take a long-term view of markets, and we take a long-term view in the way we run our company. The world will get through this crisis. The economy will recover. And for those investors who keep their eyes not on the shaky ground at our feet, but on the horizon ahead, there are tremendous opportunities to be had in today’s markets.
BlackRock’s biggest responsibility – now more than ever – is to help our clients navigate this market environment and stay focused on long-term returns.”
Vale la pena decir que el CEO del asset manager más grande del mundo no habla únicamente de enfocarse en el largo plazo, también habla de tener un propósito y de la responsabilidad que conlleva manejar el dinero de terceros. Conforme más líderes del mundo de inversiones discutan estos conceptos, es más probable que más fondos sigan esta tendencia y se comporten de manera más racional.
En cuanto a las empresas, William Upshur de Palladium Group publicó un estudio en donde enseñó que durante la recesión de 2007-2009 las empresas que pusieron la sostenibilidad en el centro de sus operaciones tuvieron mejor desempeño que las que no. Lo que esto significa es que las empresas que se comportan de verdad de una forma que optimiza el beneficio de todos sus grupos de interés verán los resultados con el paso del tiempo (es decir, las empresas que tratan a sus empleados y proveedores bien durante la crisis y no las que sólo se preocupan por mantener a los inversionistas y al mercado felices). Otra vez, creo que los inversionistas son los que pueden ayudar a empezar este ciclo positivo.
Espero esta información haya sido de tu interés. Como siempre, si hay algo en lo que pudiéramos ayudar, o si hay un tema de ESG del cual quisieras saber más, por favor háznoslo saber para considerarlo en versiones futuras.
Saludos,
Marimar
Socia, Miranda ESG
Las lecturas recomendadas de la semana
- ESG Stock Resilience Is Paving the Way for a Surge in Popularity
- Keeping a Close Eye on ESG Issues to Minimize Risk during the COVID-19 Pandemic
- Capitalism rewired: why we must rethink how performance is measured
- The power of collective investor action
- RI Survey: Pandemic could be tipping point for ESG
- Are ESG and sustainability the new alpha mantra?
- Coronavirus Pandemic Could Elevate ESG Factors
Contacts in Miranda Partners
Damian Fraser
Miranda Partners
damian.fraser@miranda-partners.com
Marimar Torreblanca
Miranda ESG
marimar.torreblanca@miranda-partners.com
