ESG stocks shine in covid-19 crisis

-- | 23/07/2020

Page 1 of 1

Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Tancrede Fulop. He is an equity analyst at Morningstar in Amsterdam. Hello.

Tancrede Fulop: Hello, Holly.

Black: So, we're talking ESG this week. And I think this has been quite a big theme this year even in the Covid-19 sell-off because people have started to see that companies displaying good ESG characteristics have actually performed very well and proved very resilient in the sell-off. And you've been looking at a few areas in particular. How have you found companies exposed to the energy transition have performed?

Fulop: Yes. So, if you look at the European utilities, which is positively exposed to energy transition, thanks to renewables and electrification of the economy, the sector registered pretty well because it is flat year-to-date versus the bond market which is down by around 10%.

And if you compare the European utilities to the European energy sector, the European energy sector is down by around 35% year-to-date and along with that it reflects negative exposure of this sector to – of oil and gas sector to energy transition. And if you look within the European utilities, the best performing European utilities year-to-date are companies with highest exposure to renewables like Ørsted, Iberdrola, Enel or RWE. And on the other hand, the worst performing European utility year-to-date is Centrica which is the European utility with the highest exposure to energy, to oil and gas production.

Black: And I think we've also seen this year that the way companies have handled and reacted to the coronavirus pandemic has really varied. So, you've been looking at the drinks space and actually how some of these companies have handled the crisis or that might have even improved their ESG credentials.

Fulop: Yes, exactly. This is the work that our colleagues at Sustainalytics have done. Morningstar has just acquired Sustainalytics. So, they analysed the contribution of the beer, wine and spirits sector to fight Covid-19 impact and these contributions mostly include the productions of hand sanitizers, guaranteeing no lay-offs and assisting hotels, bar and restaurants with their lease obligations. So, our colleagues at Sustainalytics, they show that efforts from these companies against Covid-19 may improve how the public pursue them and marginally these efforts might reduce the ESG risks of these companies, especially the environmental and social impact of their products and human capital which have the most material ESG issues for this diverse industry.

So, two examples of companies standing out in efforts against the Covid-19 – Pernod Ricard which has started producing hand sanitisers on a large scale utilising the company's distilleries across the globe and Pernod Ricard has one of the best score in managing human capital risk. Another company is Heineken. Heineken has guaranteed no layoffs of employees this year and support its on market customers, namely, hotels, bars and restaurants and Heineken also scores well on its management of environmental and social impact of products.

Black: Tancrede, thank you so much for your time. For Morningstar, I'm Holly Black.

This report appeared on www.morningstar.com.au 2020 Morningstar Australasia Pty Limited

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written content of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.