Executive Summary

Evolving ESG Lifecycles. For most sectors, the likelihood of adverse ESG events and their potential financial impacts evolve through a lifecycle. ESG lifecycles determine the time it takes for a sustainability issue to become relevant to a sector as well as the magnitude of the financial impact. We believe the ability to anticipate ESG lifecycles can enhance the investment decision-making process.

A Shifting ESG Materiality Matrix. Reflecting various ESG lifecycles, sectors move around the Materiality Matrix over time. Previously, we estimated the ESG lifecycles of MSCI ACWI sectors for the period 2006-14.

How Might Lifecycles Evolve? Based on an analysis of intangible factors, we estimate how the lifecycles of seven major sectors might evolve over the next few years.

Sector Strategy Implications. ESG risks for Financials seem to be rising given that major governance issues are not receding. By contrast, risks for the Energy sector look set to decline further.

Figure 1: Evolving Lifecycles in an ESG Materiality Matrix
Sectors’ Current Plot Points with Estimated Past and Future Positions

geraghty-materiality-graphic-929

Source: Cornerstone Capital Group

Please see here for important disclosures. The full-length report is available to clients of Cornerstone Capital Group.

Michael Geraghty is the Global Markets Strategist for Cornerstone Capital Group. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.