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ESG-compliance a sign of solid management

Solid management

When looking for good companies to invest in, ESG-observance is a key sign that “management has its act together”, a major investment bank has said.

UBS head of global emerging markets and Asia-Pacific equities Geoffrey Wong told Nest Egg that observance of environmental, social and governance (ESG) factors in companies’ investment decisions indicates that management has “its act together”.

“It can look after business, observe the environmental and labour laws and so on,” he said.

Mr Wong explained that UBS has a 32-point checklist for every company it considers, with nearly half of all questions of an ESG nature. Further, the most recent additions to the checklist are of environmental and social natures.

“We had a lot of questions on governance from the beginning, because governance has always been a traditional part of good, fundamental investing,” he said.

“But more recently we've gotten more sophisticated with the environmental and social questions as well. So not only are we looking at the environmental and social practices of the company, but we added questions on about the suppliers to the company as well.”

Mr Wong said he’s often asked what the proportion of clean Chinese companies are, however argues this is an irrelevant question.

“The question is whether I can form a portfolio of let's say 20 or 30 stocks in China, which are very good quality. And the answer is definitely yes, without a doubt,” he said.

Mr Wong said this approach stands for all markets, and especially European markets where it’s practically normal business practice.

This is good news, he said, as it also helps clients make money.

“Every year I test how well the [32 question] scoring works and last year when I tested it, at the end of the year, for the prior three years, the top one-third of quality companies outperformed the bottom one-third by 14 per cent per annum the previous three years,” Mr Wong said.

“So, actually good companies do better than bad companies generally.”

ESG-compliance a sign of solid management
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