Executive Summary

  • How Much Does ESG Matter? — As equity investors struggle with the extent to which ESG factors are relevant, we examine the issue from a quantitative perspective.
  • An ESG Materiality Matrix — For eight of the ten MSCI ACWI GICS we plot the likelihood that a material sustainability issue will occur against the potential financial impact of an ESG event.
  • Relative ESG Risks and Opportunities — The ESG Materiality Matrix can be used to identify relative ESG risks or opportunities at the sector or industry level. In this report, our focus is on relative ESG risks at the sector level.
  • Sector Overweights that Entail Relatively High ESG Risks — Overweights of the Materials, Energy and Health Care sectors create relatively high ESG risks. For Materials and Energy, environmental risks are foremost. In Health Care, the sustainability issue with the greatest likelihood of having a material impact is “business model and innovation” (e.g., product quality and safety).
  • A Relatively Less Risky Sector Overweight — In contrast to Materials, Energy and Health Care, in the Information Technology sector there are a number of ESG issues that could potentially be material, although it’s estimated their financial impact would be less significant than in the other three sectors.

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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.