Leveraging the power of equities that are authentically ESG-focused can lead to a No Bull investment portfolio that wins.
What we’ve recently witnessed at Orenda is that there is additional value to ESG during a widespread crisis. The principles backing an ESG investment strategy can be used in combination with public perception to quickly unmask companies that are not truly aligned with environmental, social and governance standards. And those proven to be out of alignment can be immediately dropped from investment portfolios and reconsidered once they do better.
Since the start of the COVID-19 crisis, social media has been saturated with ESG evidence.
Thousands of companies around the globe are being publicly shamed for behaving badly. This is especially true when it comes to companies not keeping their employees safe, not thinking of communities first, or for lacking talent needed to govern through a crisis. Never before has the spotlight been on our leaders as intimately as this crisis. It’s painfully raw and real.
And bringing even more value, ESG helps us to isolate one element from the other two when found to be a leading factor for market movements. As an example, in 2008 we would have given more weight to Governance issues vs environmental and social considerations. The financial crisis was plainly a failure in regulations and supervision. In 2020, the pandemic has anchored itself as a social crisis, separating companies that want to do good from those companies creating hardship at every turn.
To realize the underlying complexity of ESG, Orenda’s financial experts created Relationship Beta™ a uniquely defined risk factor powered by Orenda’s real-time numerical scores of equities. Driving this risk factor are a variety of metrics, including social responsibility. Social responsibility is when a company treats those in need with care and kindness and expects nothing in return.
Ezequiel Machabanski, Head of Financial modeling at Orenda, notes that Investors won’t find these factors in traditional market betas, such as Fama and French. During a social crisis, that void puts investment strategies at a disadvantage. To demonstrate the power of Relationship BetaTM, Machabanski turned his attention to Starbucks, a coffee company where we once socialized with friends. Based on the data illustrated below, he determined that Orenda’s Relationship BetaTM is statistically meaningful at 95% confidence, explaining Starbucks price during this pandemic with a R2 of 89%.
To date, Orenda has scored and archived more than 1bn datapoints on S&P500, S&P TSX60 and SIX SMI equities and we expand our cherished data asset every day with new data.
To see an investment in action throughout the COVID-19 Crisis, connect with us or connect with our data on Bloomberg’s Enterprise Action Point to download our alternative to traditional data.