Sustainability & Humility

ESG and Sustainability proponents, determined to select stocks with an ESG  ‘vision’, have been sent to the cleaners long ago. 

AlphaValue has always been quite critical of the sudden fashion for ESG that suspiciously started by excluding whole sectors on the view that they were not carbon kosher when the objective was to help the worst offenders transition to the lush hills of a green tomorrow. Not to mention the absurd exclusion of ‘Vice’ and Defence stocks.

AlphaValue's tools, which are available to all subscribers, are designed to help assess the dynamic of firms, on financials of course, but also on their ESG pretences. Sometimes it pays to look backwards and wonder what went wrong.

By late 2020, AlphaValue had finalized its highly-disciplined effort to manage live environmental data, disciplined meaning here that all stocks could be compared just as one compares financial ratios.  Live means that all data is recomputed and compared daily. At the time, we came up with a ‘Best of Sustainability’ list of 20 issuers to be able to check on them later (see below). 

Four years later, we are happy to confirm that:

- The stocks with a strong Sustainability ranking have continued to be great citizens of the planet. This consistency is excellent news per se.

- Many of those stocks would not have been investable as per the cannons of orthodox investments (say Entain, BAT, IMB).

- Depending on how one skins the performance cat, it was either a success (weighted performance, say thanks to ASML), an indifferent performance (unweighted) or a total disaster (same 5% weighting rebalanced every day, thus missing accruals of rising stocks). 

The same universe, confirmed today to be the right universe, is facing the fact that the weighting skills will produce wildly different outcomes. Ergo ESG stocks can be good to have but cannot be a strategy per se. We knew this already. This is confirmation.

Great stocks, sustainability wise, now and before

Note: Sustainability scores are made available and transparently so for every single stock at www.alphavalue.com