Bradley Amoils, US-based fund manager for the Pengana Axiom International Ethical Funds, says the market is often slow to price improvements in ESG ratings. “Targeting companies early in the ESG improvement cycle has proven to be more powerful for investment returns than investing in companies which are already considered ESG leaders.

“Companies which move from ‘laggard to leader’ on ESG can produce sustained outperformance.

“We find that dislocation periods are a particularly good time to target these dynamically growing companies.

“These companies that embrace positive change, improve their ESG ratings and create a better business will be among the first to benefit from the next upswing.”

Mr Amoils said some companies are either mis-rated on ESG or can make positive changes quickly. “We know that improving social and governance factors can have a rapid positive impact on companies and their performance. Improving environmental factors is also positive but this can take time.”

Mr Amoils said investment allocations will be enormously influenced by the ‘Four D’s’, which will shape markets for some time: Demographics due to the long-term predicted fall in global population; Debt, which has grown across the world; Deglobalisation, as countries seek more control over their supply chains; and Disruptive Technologies.

“Companies which can best navigate these factors while also improving their ESG will be best placed for growth.

“Embracing deglobalisation and digital disruption will offset the negative macro trends we are seeing with demographics and debt.”

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