Quantifying Environmental, Social, and Governance Risks
Investors have recently shown increasing interest in offerings that focus on environmental, social, and governance (ESG) sustainability. As this Wall Street Journal article notes, “in the first half of 2020, net flows into sustainable funds totaled $20.9 billion in the U.S., compared with $21.4 billion for 2019 as a whole.”
An apples-to-apples comparison, however, is difficult across different industries and companies, and even for the same company when rated by different fund managers.
Risk to a company’s cash flows can manifest in the form of strict carbon cap-and-trade programs, shifting consumer trends, and government subsidies to competitors, all of which may impact the probabilistic outlook for investments selected in a “sustainable investing” strategy.
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- Anthony Winkels is Managing Partner and Wealth Advisor at Fortis Wealth Management
