ESG Factor Pricing

We believe that it is best to use measures of ESG factors provided by a third party and we find evidence that they are modestly priced. Investors should make their own judgement of whether significant ESG factor risks are discounted by the market. There is evidence that issuers with poor ESG scores have modestly higher borrowing costs, but the distribution of responses is highly skewed. This suggests to us that ESG factor exposures are only priced after an ‘event’ and, therefore, there is value to our clients of incorporating consideration of ESG factors into issuer selection decisions.

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