The first logical explanation may be oil.
ESG indices have little to no exposure to the oil industry, so underperforming oil prices may explain some of the gap:
$SPX $XLEpic.twitter.com/Of64O2S2JT
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THREAD:
The S&P 500 ESG Index has outperformed the S&P 500 Index YTD.
Whether you're all in on ESG or think it's a fad, it's worth understanding why ESG is beating YTD.
I explain my thoughts below:
$SPX #ESGpic.twitter.com/v34cfd7UvD
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Potential reason no. 2: Momentum. Demand for ESG funds naturally boosts the price of the underlying assets, supporting the sales pitch "ESG outperforms" and creating a virtuous cycle.
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Potential reason no. 3: Supply chain quality. Companies that pledge to improve ESG metrics may have higher quality supply chains than non-ESG companies, lowering costs and improving efficiency. Below excerpt from
@FT explains this with Walmart$WMT:pic.twitter.com/KNaRwNE8KP
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There's also the COVID-19 angle to consider. Companies that place more scrutiny on their supply chains - like Walmart - have proven to be more resilient amidst the global pandemic, and have run into less supply disruptions due to sick factory workers.
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Link to
@FT article if interested: FIN https://www.ft.com/content/1cfb5e02-7ce1-4020-9c7c-624a3dd6ead9 …Show this thread
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