In this quarter’s commentary, we consider how investor risk perception at any point in time may not be a good reflection of reality at either the market or individual stock level. In particular, we’ll take a closer look at how sustainability risks can lie hidden in the background.
The evidence that sustainability, or ESG, has financial relevance continues to grow. As we look for reasons why sustainability seems to be associated with good performance, risk has emerged from the literature as one of the main contributors.
Volatility has returned, and we expect it to have continuing significance as we look out at 2019. In this environment, long-term investors who comprehensively assess risk, ESG factors and valuation have the potential to identify attractive opportunities at the asset class and security level.
There is a lot of evidence that more sustainable companies perform better financially, and we therefore believe it makes sense for shareholders to encourage companies to do better when it comes to sustainability issues, from climate change to gender equality.