When considering intangible factors and ESG issues like Diversity, Data Security, and Competitive Behavior, investors often fall into a trap: The data are taken as static, like an annual report number.
The truth is, company intangible performance is revealed day by day through the conduct of the firm. Lagging data can’t identify ESG momentum, one of the most promising metrics for finding alpha.
How can ESG momentum reveal value?
Companies with strong information flow, good overall ESG scores (the Truvalue Labs Insight Score), and positive ESG momentum (TVL’s Momentum Score) outperform the S&P 500 and Russell 1000 benchmarks over a ten-year period, adding about 3% to 5% (300-500 bps) of alpha annually. That’s according to a study by Dr. Stephen Malinak, Chief Data and Analytics Officer for Truvalue Labs.
Here’s a look at three outperforming ESG leaders from the S&P 500, based on ESG momentum: Visa, Kraft Heinz, and Berkshire Hathaway.
Above, you can see a sortable table of S&P 100 firms, sorted in this case by ESG momentum. The three companies we’ll look at score highly for both outright score and momentum–the same criteria that led to outperformance over 10 years during the study.
Visa ESG Momentum support
Visa’s long-term Insight score has been rising steadily since March 2018 with a variety of positive events in areas that the Sustainability Accounting Standards Board (SASB) considers to be financially material to its industry. Here’s a synopsis of the uptrend:
- Visa CEO Confronts Women’s Issues at the Card Giant.
The Wall Street Journal (Material Issue: Diversity & Inclusion; Recruitment, Development & Retention)
- Visa Inc. (NYSE:V) to use 100% renewable electricity across its global operations.
Benchmarkmonitor.com (Material Issue: Energy Management)
- Visa’s chief risk officer shares the company’s four pillars of payment security.
IT World Canada (Material Issues: Biodiversity Impacts; Data Security & Customer Privacy)
Kraft Heinz, Cage-free
Kraft’s ESG Insight score, a measure of long-term performance, has been rising for the past 12 months–and so too is the ESG momentum score, which reflects the directionality of the Insight score over 12 months. That’s due in part to the company’s plans to switch to all cage-free eggs by 2025.
Berkshire Hathaway’s solar buy-in
Warren Buffett’s diversified corporate powerhouse owns companies in many businesses, and taken in the aggregate, intangible performance by Berkshire has been rising strongly for 12 months, giving the company impressive ESG momentum numbers.
It has an 81 score for momentum–put in the context of peer performance, which strips out industry-wide factors, Berkshire still outperforms–it’s in the 85th percentile for its industry in momentum.
As seen above, that includes its NV Energy utility in Nevada, which is investing heavily in renewables.