Whilst there continues to be plenty of steamy discussion and hot collared dispute over the means by which the ever increasing body of experts actually measure ESG, there is an indisputable momentum behind the push for organisations of all shapes and sizes to get it on the agenda. And get it on fast. Stakeholders demand it. All stakeholders. The framework remains a little loose, but parameters are being refined and details thrashed out. It is a process, and one that needs to continue to evolve with rigour and thought. Critics point to the herding of investors into obvious ESG plays squeezing valuations ever higher on account of screening well on a spreadsheet, irrespective of real-world fundamentals. And yet, the picture is bigger. Far bigger. To make a real difference, it’s often less about investing in those with the shiniest credentials at the top-the-pops, and more about investing in those that are on a journey; those companies that are taking deliberate and thoughtful steps to improve across culture, strategy and execution and set realistic targets that align with clear and well-defined principles of ESG. Take Anthem, the largest provider of managed health care in the US. Anthem has been on a drive of constant improvement over recent years, seeing scores from ratings agencies improve across the E, S, and G, with metrics in social such as community spending, diversity, and unionisation seeing the biggest improvement. Indeed, Anthem is one of the few companies in the S&P with both a female CEO and President. An improving ESG signature makes for a strong run of feel-good slides in the quarterly deck, but doesn’t necessarily make it a good investment. Fortunately for Anthem there are fundamentals to match with high quality assets unique in both scale and brand. Earnings growth is underwritten by government spending, cost savings and cross-selling opportunities. Bears might smoke out risks such as a stubbornly high unemployment rate or pressure on federal and state budgets as rates back up. Bulls might simply utter one word: ‘valuation’.
The securities mentioned in this blog may be held by funds managed by Majedie Asset Management Ltd.