By Jonas Edholm Portfolio Manager
Why neglected small-caps driving real-world changes can be the big winners of the green transition.
The list of companies topping the ESG ratings of providers like MSCI or Sustainalytics contains few surprises. Most are household names and all are among the largest listed business on the planet. Does this mean that they became the biggest through being the greenest or is it just coincidence that the most valuable companies also rank as the most responsible?
Neither is true, of course. A recent study found that ESG ratings are uncorrelated with a company’s environmental performance and CO2 emissions, energy use, water and waste production unsurprisingly scale with company size[1].
Many of the supposed ESG leaders are technology companies which are asset-light but where less visible emissions from things like data centres, servers and electronic waste put the sector’s overall environmental impact on a par with the aviation industry. As these companies have grown increasingly weighty in global stock markets (the tech sector now represents a quarter of the MSCI ACWI Index), so carbon intensity measures have fallen while real-world emissions – which unfortunately can’t be outsourced or passed along the supply chain – have remained flat.
