Sustainability current top dogs

We briefly looked at the 20 stocks out of 460 that happen to be sustainability top dogs as per AlphaValue’s metrics. They are proprietary and thus independent.

We are pleased by the diversity of business models and sectors, confirming that AlphaValue methods are open-minded ones. If anything, in true contrarian form, we are disappointed to have a green play as top dog (Orsted). One cannot but think that the green plays do know how to tick the right boxes. It is fair to say as well that Orsted is too young a listed company to have had the occasion of a big governance slippage. 

That comment is not innocent. Front and centre of AlphaValue’s sustainability metrics is good governance which in market talk is governance aimed at supporting the best interest of minority shareholders. Without solid and democratic governance principles, all claims to be green and social compatible are just that. Conversely, good governance is not an insurance policy of doing well on the green and HR front.

Of the 20 top names, none come from a large country unless they are UK-based. Before charging these issuers with consummate talent to match box-ticking requirements, it is fair to pinpoint that UK stocks tend to be more respectful of their minority shareholders and have a long-established history of doing so. 

Leaders in sustainability ranking do well on the governance front. They do too on environmental metrics with progress on reduced tapping of natural resources more important to determine their green score than the absolute levels. 

As a group it makes for a pretty bland universe that has so far not done better than the market ytd. Here are the essential statistics. On this simple vision, there is no benefit for going ‘sustainable’. Obviously, the ruler may be wrong but claims that ‘sustainable’ stocks do better must be taken with a pinch of salt. It is impossible to prove anyway over a normal investment horizon.

Sustainable stocks are rather average stocks when taken collectively

To nail down further the view that sustainability is a no-performance guarantee, we matched this list with the fundamental upside potential of each one of these stocks and to their business model (Fundamental strength on a 1 to 10 scale). It is most interesting that sustainable investment stories are not all top financial performers (strong businesses that can afford to spend a bit more on giving their chance to the future). Per se, this is positive, but one will be hard pressed to find performance in good sustainability.

Posted in ESG