The value of active ownership

The value of active ownership

In recent weeks and months, the public health and economic crisis triggered by COVID-19 and the renewed call for social justice, following the death of George Floyd in Minnesota, have shone a spotlight on companies around the world and the investors that fund them. This situation creates opportunities, challenges and responsibilities not only for companies, but also for investors.

Environmental, social and governance (ESG) issues are not only relevant for people and the planet – they are also financially material to equity and bond returns. For example, the value created by effectively supporting human capital – as manifested in productivity, talent retention and the creation of intellectual property – had been growing in importance even before the COVID-19 pandemic and the renewed calls for social justice.

Intangible assets, such as human capital and brand value, are highly sensitive to ESG factors as they can be easily compromised and their value can be influenced, to a large degree, by perception. There is irrefutable evidence that the importance of intangible assets has been growing in recent years.

For example, research by Aon and the Ponemon Institute finds that 84% of the market value of the five largest US companies is attributable to intangible assets, compared to just 17% in 1975 and 32% in 1995.

As the global economy continues to shift from manufacturing to services, this trend, and ESG’s importance to the investment process, is likely to continue to increase.

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Investment Risk

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