ESG is the Best Signal for Future Earnings Volatilty, BofAML Equity Research

30 Jun ESG is the Best Signal for Future Earnings Volatilty, BofAML Equity Research

“What if we told you how to avoid stocks that go bankrupt?” BofA Merrill Lynch’s US Equity & Quant Strategy team boldly claim in this context, Environmental, Social and Government (ESG) factors are too critical to ignore. From their stock take on US equities, they found that “…ESG appears to isolate non-fundamental attributes that have real earnings impact: these attributes have been a better signal of future earnings volatility than any other measure we have found.”

The report further states that major US corporations are lagging behind the rest of the world, notably Europe. Illustratively, the UN’s Sustainable Stock Exchange (SSE) Initiative’s global partners include 15 stock exchanges that provide written guidance on ESG reporting and 12 that require companies to make ESG disclosures. Not one is in the United States. However, US investors care more about ESG than companies think.  One-fifth of investors in BofAML’s May 2017 institutional factor survey use ESG in their processes, significantly higher than the 5% that US corporates estimated.

Full report available here.

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