How ESG Investing Principles Compliment Growth-Style Trading - YouTube

ESG investing which focuses on companies that receive high marks

and environmental social and governance factors was a growing

Market before the pandemic but since coronavirus hit socially

conscious investing has become even more popular with investors.

ESG index funds have talked more than 250 billion with the US

market accounting for about 20% of that total joining me to discuss

these ESG investing Trends and more is Jonathan Bailey.

He's the managing director of ESG investing at Neuberger

Berman. So Jonathan over the course of this year with a pandemic

we seem more social activism especially around issues related to

racial Injustice and climate change.

Is that translating to more demand for ESG investing.

What have you seen in terms of growth?

But Alexis, it's a it's a great question is the question

that a lot of our clients are asking themselves.

What is my money doing?

Is it of the solution to be pressing environmental

and Social Challenges that are visible to so many of us through

the course of this year and what we've seen is increased

interest flows and ultimately Market valuation premiums resulting

from the focus on environment clients are now looking more closely

at what questions as to how the topics everything from how companies

are thinking about gender and Racial equality through to the

role that the energy sector has in the transition

to a low carbon economy so there's a

lot of great dialogue that we're having to find and they're trusting us to be part of the solution

Right and i think one of the big concerns or maybe one of the stereotypes investors have about ESG investing

means that you might sacrifice

performance, you know to have these feel good Investments

is that necessarily the case?

Well, we don't believe so.

If you look up morningstar's assessment of several hundred

mutual funds 2020 so far funds that have a focus on sustainable

investment practices that have outperformed their peers here at Neuberger Berman we found through the course of market volatility of 2020.

that all but one of our sustainable and impact strategies added meaningful alpha. and we think that's because they're invested in businesses that have a higher quality of

Delivering products or services that are more Central and have

great quality management teams that have been able to look around

the corner. to insure they have more resilient business as they come under pressure.

There's absolutely a link between strong long term investing performance

and ESG rather than the other way around

Right and when it comes to prioritizing these principles

Is it more important that a company reduce its

carbon footprint or have a more diverse board.

I mean, how do you gauge those terms in terms of looking

at the overall portfolio performance, you're right and they're

all seems like climate, but that's why companies sample.

If you're looking at sector, I like the fact that we want to understand

things like what the health and safety at night.

we want to understand how the vehicle fleet is

Going to become more efficient and the longer term transition

toward electric vehicles.

And you know autonomous driving is going to be quite different

than a software company.

We're going to look at issues like diversity in the hiring

practices is you trying to understand how you think about using

your Market power.

Are you abusing it on recording intellectual property?

That's one of the things that said a lot of companies are doing

today. They are running a lot of data centers. so they actually have quite a big carbon footprint. so what are you doing to reduce the emissions

Are you using Renewable Power or by using offsets.

So the topics are slightly different sector by sector but the

key thing is to get the specifics that allow you to compare

and compete with in a sector against each other to decide

who you want in your portfolio. right and so much of this can reveal the fundamentals of the company

And you know, I think when we look at certain investment

Styles, I know we'd like to promote a growth investment

as strategy and sometimes these ESG principles can be so far

off in the distance.

But how do you feel that?

They complement growth investing strategies?

I think one of the things that often happens.

You owe me a lot of weight on that Seminole Valley and you're

paying a premium in the multiple because you believe the company's

going to earn its way into that ESP leaders that have seen more

about multiple expansion.

So I think

Just from a technical perspective. looking at ESG as a way of forecasting which companies are positioning themselves for that

Secular, thematic trend for growth the may not yet be fully

appreciated by The Market, but once it is and the company does a better job at explaining it. That may see a multiple expansion

but then. on the fundamental side. clearly the opportunity to compound growths through delivery products and services

that are more efficient. We've seen that  

with names like tesla or beyond meat

I've been on the phone with names like Tesla and beyond meat that could arguably

be the valuation we got slightly beyond the fundamentals but there is a good growth story based on ESG fundamentals

with names like that. investors early on the process saw the opportunity.

well Jonathan, thanks so much for your insights today. it's been lovely to be here

and you can learn more about ESG investing in our special report over at investors.com

for Investors Business Daily.

I'm Alexis Garcia.