Climate-focused companies outperform peers during COVID-19 outbreak

Companies focused on tackling climate change and other environment, social and governance (ESG) issues have outperformed their peers during the spread of coronavirus.

That is according to a briefing from Ashim Paun, co-head of ESG research at HSBC, which explains how COVID-19 has impacted air travel, industrial emissions, healthcare, jobs, and social equality.

The virus has also caused major disruption to financial markets, and the briefing explains how the effect on balance sheets raises questions around good governance.

It states: “Within the stock market turmoil, shares of companies focused on climate change or ESG issues outperformed as the virus spread.

“When crises like COVID-19 manifest, particularly with social and environmental causes and implications, investors can see ESG as a defensive characteristic. ESG factors will be important in understanding how companies and sectors are exposed to this crisis.

The researchers analysed 613 shares of global public companies valued at over $500m where climate solutions generate at least 10% of revenues between 10 December and 23 March, and 24 February and 23 March.

The climate-focused stocks outperformed others by 7.6% from December, and by 3% since February.

The researchers also looked at the 140 stocks with the highest ESG scores and values above the global average, finding that they outperformed others by about 7% for both periods.

However, there were some big regional differences. Asia Pacific climate shares outpaced the region's index by 13.6% since 10 December and 5.6% since 24 February. Europe outperformed since December but underperformed from February.

Climate stocks in the Middle East and Africa underperformed the region by 0.3% since December and 0.9% since February, and North America shares performed 1.9% and 6% worse than the regional index.

The ESG companies also outperformed in Europe and Asia but underperformed in the Americas.

“We think investors should consider how well companies manage these ESG risks,“ the briefing states.

“Our core ESG conviction is that issuers succeed long-term, and hence deliver shareholder returns, when they create value for all stakeholders – employees, customers, suppliers, the environment, and wider society.“