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About this podcast

This pandemic has highlighted an urgent need for companies to respond to concerns over employee health and safety, supply chain risks, and business continuity planning, among others. Melanie Adams, Vice President and Head, Corporate Governance and Responsible Investment, RBC Global Asset Management, takes a look at the renewed importance around companies’ environmental, social, and governance (ESG) practices in the wake of COVID-19, and how the handling of these issues can help or hurt their performance in the long run. (Recorded June 10, 2020)

Transcript

Hello and welcome to the Download. I’m your host, Dave Richardson. And today I’m joined by a special guest, Melanie Adams, who is the V.P. and Head of Corporate Governance and Responsible Investing at RBC Global Asset Management. Melanie, welcome to the podcast.

Thank you. Happy to be here.

For those of you who want a much longer primer in ESG investing and Melanie’s views on the topic of responsible investing, corporate governance, if you go in the archives of the Personally Invested podcast, which is where you’ve sourced this podcast and is available in all the different podcasts streaming services, I’d encourage you to do that. But what I really wanted to do with Melanie today was check in, because that podcast talks about the importance of ESG through what we might call normal times or the times we were more familiar with. But of course, we’ve gone through this crisis with Covid-19 and now we’re going through a reopening process across the global economy. But what’s interesting, I was watching one of the business news channels last week, and sure enough, the ESG index in the U.S. is outperforming the S&P 500. So, Melanie, what have we learned about the importance of ESG, not just before the crisis, but now in the midst of the crisis and coming out of the crisis, as an important way for investors to look at what they’re investing in?

Well, the short answer is that we’ve learned that ESG was important before, during, and it will be important after the Covid pandemic. We know that extra financial factors play an important part in a company’s financial performance. For example, if you think about cybersecurity policies and oversight, good governance of cybersecurity can prevent costly cyber attacks. During the Covid pandemic, what we’re seeing is the S factors really come to the forefront. So, for example, what we mean by the S factors are employee health and safety. This includes: benefits, sick time, other accommodations that companies are making, how seriously this is being taken by companies; supply chain risk (how are companies getting the materials they need during the pandemic and are they well diversified?); business continuity planning (how well companies are managing to work remotely?); and governance issues. We just came through proxy voting season in North America where we saw a large number of annual general meetings that were held virtual only or else they were postponed. So there has been a lot of discussion about the performance of ESG portfolios during the pandemic. We’ve seen a lot of inflows into ESG portfolios. When it comes to performance, it’s really important to look at the specific strategy and to understand the reasons why. Often in ESG strategies, we are very heavy in technology and technology, as we both know, has done very well during the pandemic. There are also some ESG strategies that are light in energy and energy has also been volatile in the last several months. So we’ve seen that there can be a lot of different reasons for this outperformance. But there have been some studies that are starting to come out now. And it is intuitive that companies that manage their issue risks, and in particular the employee health and safety, will be more resilient through the pandemic.

And so that’s a great synopsis of what’s been going on through the crisis. And, as always, the importance of ESG investing. This is something that has become particularly important for younger investors. Younger investors just will not look at companies that are not strong in this area, and even for large investment managers. I know, for the company that you work with, RBC Global Asset Management, this is a really important factor in decisions you’re making around investing, correct?

Absolutely. We’ve been doing a lot of work in this area to make sure that our investment teams are thinking about these factors. And one area that we’ve been doing a lot of work is in relation to climate change and how companies are preparing themselves for the risks and opportunities associated with the climate change considerations.

Well, Melanie, that’s fantastic. Thank you very much for the update. I’d like to get you back to talk about the discussions around climate change and the impact on investment strategy. But thanks for your time today. And we’ll hopefully get back to you in the near future.

Thanks very much, Dave.

Disclosure

Recorded June 10, 2020

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