Companies Talk ESG Game, But Does It Matter? | ETF Trends

It’s increasingly common for companies to discuss their environmental, social, and governance (ESG) efforts, and quarterly earnings conference calls are fertile ground for those conversations.

However, simply because a company openly discusses ESG doesn’t mean it’s a “good” ESG firm. Fortunately, a variety of exchange traded funds identify companies that are doing more than talking a big ESG game. That group includes the SPDR S&P ESG ETF (EFIV).

Analyzing S&P 500 earnings conference calls from December 15 through March 14, FactSet’s John Butters highlights trends in ESG mentions.

“Of these companies, 155 cited the term ‘ESG’ (in reference to environmental, social, and governance factors) during their earnings calls,” Butters notes. “This number marked the highest overall number of S&P 500 companies citing ‘ESG’ on earnings calls going back at least 10 years. The previous record was 153, which occurred in Q2 2021.”

Perhaps not surprisingly, FactSet’s research turns up important points, including that companies mentioning ESG more frequently on earnings calls have better ESG momentum and scores.

“The companies that cited ‘ESG’ on their Q4 earnings calls have a higher average Insight score (57.9 vs. 54.7) and a higher average Momentum score (56.2 vs. 54.2) than the companies that did not cite ‘ESG’ on their Q4 earnings calls,” adds Butters.

The FactSet research doesn’t address sector-level trends, but EFIV provides investors with an efficient glance at where strong ESG names reside. The ETF, which tracks the S&P 500 ESG Index, allocates 29.54% of its weight to tech stocks, according to issuer data. Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) combine for 16.37% of EFIV’s roster.

Healthcare and consumer cyclical stocks combine for over 27% of EFIV’s weight, while financial services and communication services chime in at 9.72% and 9%, respectively. Bottom line: It’s likely that as ESG becomes a bigger priority for more S&P 500 companies, they’ll be more open to discussing it in public forums, particularly if they have something to brag about.

“Based on Q4 2021, it would appear that companies that are making more progress on their ESG initiatives and scoring higher on ESG ratings may be more prone to discuss their ESG initiatives and their progress during their earnings calls. FactSet will continue to monitor the ESG scores of these two groups of companies going forward,” adds Butters.

For more news, information, and strategy, visit the ESG Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.