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RBC US Equity Strategist Sara Mahaffy: Coronavirus Led Companies to Show Commitment to ESG

John Jannarone

Sara Mahaffy, U.S. Equity Strategist at RBC Capital Markets

By John Jannarone

The coronavirus pandemic has prompted companies to take extraordinary measures, including actions and statements that demonstrate their commitment to environmental, social, and governance (ESG) matters, according to Sara Mahaffy, U.S. Equity Strategist at RBC Capital Markets, the investment bank within Royal Bank of Canada.

“I think the crisis has brought treatment of employees into the spotlight,” Ms. Mahaffy said in an interview with CorpGov. “Companies are trying very hard to demonstrate commitment to ESG principles.”

Ms. Mahaffy recently co-authored RBC’s latest ESG Scoop, which identified which ESG-related issues that have been in focus during reporting season. The report found that sectors including staples and financials stood out, with a number of companies increasing compensation for onsite employees and enhancing benefits including paid leave.

RBC also found that inflows to a “scrubbed universe of active & passively managed sustainable equity funds” hit new highs in the first quarter and were on track for a strong April. “ESG fund inflows were surging pre COVID and have held up through recent volatility,” Ms. Mahaffy said.

Performance has also been strong in the ESG universe. “55% of fundamental, actively managed sustainable equity funds have beaten their benchmark so far this year,” Ms. Mahaffy said.

Even for companies have been forced to lay off employees, there has been an emphasis on providing benefits to help people and their families weather the storm and demonstrate that senior management was willing to make sacrifices.

“We have seen a number of corporates emphasize how they are maintaining health care benefits during furlough periods and also have seen them reduce executive and BOD compensation,” the report said. “We also noticed some examples where Consumer Discretionary companies initially tried to maintain pay through closures.”

The immediate concern around employee well-being may have temporarily prompted companies to shift focus away from the “E” in ESG. “Separately, focus on environmental initiatives has taken a back seat in commentary as companies address the immediate impacts from covid-19 in their releases,” the report said. “But we did find 9% of S&P 500 companies announcing new environmental/other sustainability initiatives or recommitting to previously announced ones. Announcements have been most common within Utilities and Financials.”




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