NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, December 15, 2016

“I’ve seen a number of reports and there is no hard evidence that you either give up or gain any performance [from ESG investing],” US-based Biggers told our sister publication Fund Selector Asia on a recent trip to Hong Kong. “One school of thought is that incorporating environmental, social and governance factors will improve the selection of sound investments, while another school considers weighing such factors as a diminution of pure investment conviction.”

Biggers himself believes that “over the long run, it might not create outperformance, but it can keep you out of underperformance”. The rationale is that although ESG screening might hold investors back from investing in certain companies that could generate high dividends or good performances, an ESG-fitted company is healthy over the long run and should perform better, he explained.

Biggers said Franklin Templeton is relying on external ratings from ESG service providers including MSCI and Bloomberg, which rate individual companies. The analysts can refer to the ratings when they research a company. Still, “complex organisations have many dimensions and an ESG rating will not perfectly characterise a company’s total social impact”, he noted.