ESG Focus | Dec 07 2020
FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:
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ESG Focus: Higher Risk For ESG Stocks In 2021
-Market momentum switch in 2021 can prove negative for ESG Quality stocks
-Many Quality ESG stocks in Asia-Pacific have benefited throughout the pandemic
-Credit Suisse believes factor risk for this year's beneficiaries has risen significantly
By Sarah Mills
Credit Suisse says the overperformance of ESG “quality” stocks throughout 2020 post-covid has created a factor risk for ESG investors heading into 2021.
The observation was included in the media launch of its 2021 APAC Equity Strategy, in which Credit Suisse signaled a super-cycle for Asian stocks, starting in 2021. The Australian market is expected to remain equal-weight.
ESG was just one factor risk mentioned in the media briefing, the other main two being the elevated factor risk of growth stocks over value stocks; and the risk of a shift from North East Asia to South East Asia.
Credit Suisse's Head of Quantitative and Systematic Strategy, Asia Pacific, Will Stephens says that while not definitive, factor risks for growth stocks have rocketed in the past few years and the pandemic has supercharged the trend.
“It is hard to pick exact factor timings but there is no doubt that risks in growth stocks have become significant,” says Stephens.
Stephens notes that a potential vaccine recovery, trade policies, the Biden presidency and regional and global fiscal policy all present as disruptive catalysts for Asia-Pacific stock markets in 2021.
While the risks for ESG-focused quality stocks has risen, Stephens notes that a lot of people are looking at ESG through many lenses, such as sectors explicitly geared to environmental themes and individual policies relating to the E, the S and the G.
This makes it difficult to tar all ESG stocks with the same factor-risk brush.
The factor risks observed by Credit Suisse were those posed by companies that had been attracting investment on the basis of positive ESG company policies and practices that enhanced sustainability, rather than those specifically geared to environmental disruption.
Stephens says Credit Suisse remains “very bullish long-term on sustainability” and notes the ESG focus has a significant overlap with more specific green play and other themes, which can significantly ameliorate risk.
I read this to mean that non-green and non-social stocks that have garnered institutional favour for improved ESG reporting may be more vulnerable to factor risk during 2021 than sectors specifically geared to environmental impact and disruption.
FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/
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