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🗞️ Driving the news: Sustainable equity funds typicallyvoid controversial sectors and companies
• Yet, targeting overlooked sectors and companies ripe for positive change offers diverse returns for ESG-focused investors
🔭 The context: ESG-focused investors often lean towards well-performing companies, which rewards those with commendable environmental, social, and governance practices
• But lower-rated ESG companies often have more room for improvement, and their growth can translate to significant investment returns
🌎 Why does it matter for the planet: ESG ratings are typically retrospective, not accounting for a company's ongoing improvements
• Therefore, investing in companies that are actively bettering themselves can support positive environmental and social changes
⏭️ What's next: Active equity investors should seek out companies poised for positive ESG change, not just those with already high ratings
• By doing so, they can influence management decisions in favor of more sustainable practices, helping even the most ESG-lagging companies move in the right direction
💬 One quote: "What we've found is even if it gets easier for these green firms to access capital, their environmental impact barely changes, when the cost of capital increases for brown firms, they seem to react by becoming more brown" (Kelly Shue, professor of finance at Yale University)
📈 One stat: Companies that receive an ESG rating upgrade outperformed the MSCI All Country World Index (ACWI) by 0.36% over a 12-month period, whereas those downgraded underperformed by 1.33%
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