Sustainable

ESG VALUATIONS HEADING INTO ‘UNSUSTAINABLE’ TERRITORY?

Published On: May 11th, 2021|By |Categories: Market Updates, Sustainable|3.1 min read|

In our investment approach we have always included the ‘ESG’ (environment, social, governance) aspects when selecting securities.

Our stance has always been that fundamental long-term investors cannot ignore ESG considerations in their research of a company and we certainly support the much-needed attention this brand of investing is placing on important issues that go beyond a company’s short-term financial performance.

That said, our guard is always raised when we observe trends characterised by indiscriminate investor inflows into a limited investable universe. This inevitably leads to unsustainable overvaluation and consequent disappointment over realized investor returns. We can already observe a substantial valuation rerating among ESG darlings that cannot be attributed just to changes in the longer-term company prospects.

MSCI World ESG leaders index trailing P/E

Once again we note that ‘value’ part of our sustainable value investing approach is so important. Those investors simply investing in the broad ETF’s (see inflows in the graph below) may well be disappointed with future returns as the space gets more and more crowded.

ESG ETF AUM vs. All Equity ETF AUM

Now more than ever it is important to select individual equities within the universe that offer not only the long term ESG benefits, but just as importantly are not overpriced. Valuation discipline is likely to become the key driver of returns in this area.

ESG investing, as with any segment of investing, requires a solid valuation framework if it is to prove a sustainable investment movement and not merely another fleeting investment fad.

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ABOUT THE AUTHOR
Didy Michels – van der Schilden, CAIA (1979) is de directeur van Mpartners. In 2003 startte ze haar carrière als hedgefondsanalist bij Insinger de Beaufort Asset Management. Eind 2006 werd ze verantwoordelijk voor institutionele sales van de specialist fondsen en de business development van de afdeling asset management. In 2009 werd ze director, verantwoordelijk voor de afdeling financial product advisory van Bank Insinger de Beaufort. In 2010 heeft zij samen met de andere partners Mpartners opgericht. Tevens is zij mede-oprichter van Alternatives4Children, een stiching die als doel heeft het welzijn van kinderen te verbeteren, met name door het toegang geven tot onderwijs. Didy van der Schilden heeft een B.Sc. van de Hogeschool voor Economische Studies in Amsterdam en is Chartered Alternative Investment Analyst (CAIA).