The Case for US Listed Casino Companies to Provide Enhanced ESG Disclosures
- Adam Steinberg, CFA
- Aug 3, 2020
- 3 min read
There are 16 stock exchanges in the world with combined market capitalizations of listed companies over USD1 trillion, known as the Trillion Dollar Club. The New York Stock Exchange (USD22.9 trillion) and Nasdaq (USD10.9 trillion) are the two largest exchanges with a combined market capitalization almost equal to the USD38.4 trillion market capitalization of the remaining 14 members of the Trillion Dollar Club. While US capital markets are the largest in the world, they are falling behind the other national stock exchanges in requiring material Environmental, Social and Governance (“ESG”) disclosures.
The US Securities and Exchange Commission (“SEC”) doesn’t require companies to make ESG disclosures, while Congress’ House Financial Services Committee opposed proposed legislation to impose reporting standards comparable to the United Kingdom and European Union. This decision was opposed by asset managers who are including ESG metrics into the investment decision-making process and desired clarity around disclosure requirements to make the companies more comparable. AM Steinberg Advisors believes that US-listed companies should voluntarily comply with relevant global ESG reporting frameworks, such as the Global Reporting Initiative (“GRI”), United Nations Global Compact (“UNGC”), or International Integrated Reporting Council (“IIRC”). It should be noted that 35 countries use GRI reporting standards in their sustainability policies. We believe there are a number of reasons for companies to provide enhanced ESG disclosures, including:
Enhanced access to international capital markets
International regulators, such as in the UK, have mandated that investors incorporate ESG analysis into the investment decision, thus reducing or eliminating non-compliant companies from investment consideration
In early 2020, BlackRock, the largest asset manager in the world with USD7.4 trillion in AUM, announced that all the firm’s investment decisions will include ESG analysis[1]
More than half of global asset owners are implementing or evaluating ESG considerations in their investment strategy
Global sustainable investing assets is estimated to have grown 34% to USD30.7 trillion from 2016 to 2018 (see figure 1)
Correlation of ESG disclosures and market returns
A 2018 Bank of America study found that companies with better ESG records produced higher returns for the last five years[2]
In an April 2018 report, the Chief Investment Officer of Deutsche Bank Wealth Advisors highlighted that better environmental responsibility and employee relations ratings appear to lead to a lower cost of debt and higher credit ratings[3]
The DB researchers examined nearly 2,250 academic studies and noted that “only 10% of the studies displayed a negative ESG-CFP (“corporate financial performance”) relationship, while an overwhelming share of studies found positive results, of which 47.9% in vote-count studies and 62.6% in meta-studies yield positive findings”[4]
During the first quarter of 2020, while major market indices experienced massive declines due to the Coronavirus pandemic, sustainable funds “outperformed the broader market.”[5]
Inclusion in ESG Indexes
There are approximately 7 ESG investment strategies, of which negative screening is the most prevalent (64% of ESG strategy in 2018). Companies would automatically be excluded from investment by a fund for failing to satisfy certain ESG criteria[6]
Shifting demographics of investors
Figure 1: SNAPSHOT OF GLOBAL SUSTAINABLE INVESTING ASSETS, 2016–2018
Source: Global Sustainable Investment Alliance, 2018 Global Sustainable Investment Review
[1] BlackRock Client Letter, https://www.blackrock.com/corporate/investor-relations/blackrock-client-letter [2] Carmen Reinicke, Business Insider, “BANK OF AMERICA: These are the top 10 reasons investors and companies should care about ESG investing,” September 26, 2019, https://markets.businessinsider.com/news/stocks/10-reasons-to-care-about-esg-investing-bank-of-america-2019-9-1028557439# [3] Markus Müller, et al, DB Wealth Management, “ CIO Insights Reflections: Making a positive impact on financial performance and an society,” April 2018 [4] Ibid [5] Audrey Cher, CNBC.com, “ Sustainable funds are outperforming their peers during the pandemic, BNP Paribas says,” June 2, 2020; https://www.cnbc.com/2020/06/02/esg-funds-outperforming-peers-during-coronavirus-pandemic-bnp-paribas.html [6] Global Sustainable Investment Alliance, “2018 Global Sustainable Investment Review” [7] Hillary Hoffower, Business Insider, “There are 618,000 millennial millionaires in the US, and they're on track to inherit even more wealth from the richest generation ever,” October 18, 2019; https://www.businessinsider.com/millennial-millionaires-baby-boomer-inheritance-wealth-transfer-2019-10 [8] Investment News, “Almost 8 in 10 millennial investors put ESG first,” January 2, 2020, https://www.investmentnews.com/almost-eight-in-ten-millennial-investors-put-esg-first-175825
A quick read that was relevant and interesting. Thanks for sharing