Allocators Still Skeptical That ESG Can Deliver Good Returns

Some 58% of US institutions are unsure about investment performance, a survey says.


Environmental, social and governance is very popular among pension plans and other institutional investors. But at the same time, according to a survey, many allocators still question how good ESG-oriented investing is at producing returns.

The annual institutional investors study by Schroders Investment Management finds that 58% of U.S. institutional investors said “performance concerns were a hinderance for sustainable investing.”

Their counterparts elsewhere on the globe were slightly less downbeat about ESG: 53% expressed such reservations, per the Schroders report, which covered 770 investors globally, 120 from the U.S.

Much of the investor skepticism can be linked to the tough times capital markets have encountered lately and a lack of clarity about what exactly ESG is, said Marina Severinovsky, Schroders’ head of sustainability for North America, in the report. “You’ve had a couple years of good performance, [and] now you’ve had a more challenging period of performance,” she added.

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What many investors had termed ESG stocks—namely, technology names—have underperformed this year, she noted. They aren’t doing well because of “larger economic dynamics” that have nothing to do with ESG, she said.

Before they invest in ESG, allocators indicated they wanted better data about sustainable investing, the study shows. Some 51% of U.S. institutional investors pointed to data shortfalls as a problem for them. “The marching orders for us as an industry … [are] that folks really do need more comparable data and more clarity of categories,” Severinovsky said.

Exponents of ESG argue that, regardless of current market gyrations, the strategy is wise because it steers investors clear of problems that stock issuers may suffer from environmental problems and the like.

“We think ESG is best because it lets you avoid risk,” says Mike Moran, senior pension strategist at Goldman Sachs Asset Management, in an interview. “In five to 10 years, there will be no ESG” designations in investing. Reason: Everyone will have adopted ESG behavior, he says.

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Downturn-Spooked JPM Axes Buybacks—So Will Others Follow?

Corporations have a hefty amount of cash, so perhaps share repurchases won’t be hurt too much.


Are U.S. companies’ enormously popular stock buybacks going to ebb? Maybe to some degree, but not a lot.

The question arises after JPMorgan Chase temporarily suspended its robust buyback program, as the bank’s earnings missed analysts’ estimates for the second quarter. CEO Jamie Dimon said in a statement that pausing the repurchases is prudent, as it will “allow us maximum flexibility.”

During the financial crisis, buybacks tumbled, from the then-high of $750 billion in 2007’s last quarter to $100 billion in 2009’s second period, research shows. They also plummeted in 2020’s third period, only to quickly resurge.

This time, maybe the worst buyback cutbacks will be confined to the financial sector. A Federal Reserve study showed that bank share repurchases in late 2008 and 2009, during the Great Recession’s worst days, dwindled to almost nothing. But that was a special circumstance propelled by federal regulators. JPM’s buybacks have been big, $22.6 billion last year and $2.4 billion in 2022’s first quarter.

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Thus far in 2022, for corporations nationally, despite economic and geopolitical turmoil, share repurchases seem to be holding steady. They should reach an all-time high this year, according to projections from Condor Capital. The firm figured that the huge amount of cash on corporate balance sheets will keep the buyback engine chugging.

But any economic slowdown ahead could, as happened in the past, make company leaders more prudent. That’s the view of Matt Daly, Conning’s head of corporate and municipal teams. “I don’t expect companies to go out on a limb with repurchases,” he says.

 

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