Engagement should be an integral part of any investment approach. By engaging with issuers, investors can encourage them to adopt better environmental, social and governance (ESG) practices, and thereby, deliver a better financial return and a public good. In a new case study, Audra Stundziaite, Senior Credit Analyst and Jaime Gornsztejn, Director in Hermes EOS, the stewardship and engagement team at Hermes Investment Management explain how they addressed ESG concerns by engaging with oil producer Pemex.
Audra Stundziaite said: “There is no shortage of evidence that shows a relationship between ESG risk and financial outcomes. Indeed, a plethora of academic and financial studies can attest. Well-governed companies with minimal or positive impacts on society and the environment tend to have lower costs of capital than their less-sustainable peers.
“For credit investors, this has an important implication: companies with poor ESG characteristics tend to have a higher cost of capital because they are exposed to more risks stemming from externalities that undermine corporate financial performance.”