• Mon. Oct 18th, 2021

Inditex And REE Are ‘Shielded’ Against ESG Risks

ByRoger Fisher

Oct 4, 2021

Since it began to talk about integrating sustainability in finance, an idea that has been repeatedly repeated is that adding ESG (environmental, social and good governance) aspects to the traditional financial analysis allows reducing the risks that the investor assumes in the portfolio and contributes to making it more resilient.

And it is, as various studies have already shown. The Practical Guide to Sustainability and Asset Management (prepared by Afi, Allianz Global Investors and FinReg 360) points out that, during the Covid crash , “in all geographic regions the sustainable indices presented a better relative performance , with the MSCI SRI standing out for above the rest, except in emerging markets. ” They also did better in previous crashes . See other articles on sustainability in the Economist Sustainable Investing and ESG.

If we look at the degree of protection shown by the Ibex 35 companies against the risks linked to ESG factors, two companies stand out from the rest: Inditex and Red Eléctrica . Both present, according to the Sustainalytics parameters, a negligible level of risk.

Sustainalytics ( a Morningstar company ) rates sustainability risks, in its ESG Risk Score, on a scale from 0 to 100, as follows: a score between 0 and 10 implies that the analyzed company has a negligible level of risks Unmanaged ESG. Between 10 and 20, the risk is considered low ; from 20 to 30, medium; from 30 to 40, high ; and from 40 onwards, severe . It is unusual for companies to present risks beyond 40 points, and also to stay below 10. This methodology is recent: Sustainalytics launched it in the middle of last May. And a key aspect is that these scores They allow comparing, on an equal basis, companies from different sectors (an Inditex with a Repsol, for example), something not so common with regard to sustainability ratings.

37% of the Ibex has low risk
Of the 35 Ibex companies, only those two, Inditex and Red Eléctrica, have a negligible ESG risk level . The following 11 companies (ranked from best to worst grade) fall into the low risk category : Aena, Merlin Properties, CIE Automotive, Indra, Siemens Gamesa, Cellnex, Amadeus, Telefónica, Enagás, Viscofan and Naturgy. In total, 13 of the 35 companies in the index (37% of its members) fall into one of these two categories.

In a slightly more compromised area, that of medium risk , there are 15 other stocks (again, ordered from best to worst score): Endesa, Iberdrola, Acciona, Mapfre, Grifols, Bankinter, BBVA, CaixaBank, Meliá, Repsol, Ferrovial, IAG, Santander, Almirall and Pharma Mar. The best within this group, Endesa, obtains a Risk Score of 20.03 (at the limit of being considered low risk), and the worst, PharmaMar, 29.8.

The most unprotected
Fluidra, ACS, Acerinox, ArcelorMittal and Solaria enter the swampy terrain of high risk . The first of them obtains a 32.1, and the last, the manufacturer of solar panels, receives the worst score of the index , 38.8 points. It stays close, without falling into it, of the severe risk, which starts from 40. No Ibex 35 company enters this section, the most negative. On the other hand, there are two values ​​for which this provider does not provide a risk score: Sabadell and Colonial.

As explained by Sustainalytics, this new methodology has been developed to help investors identify the material ESG risks of portfolio companies (those that have an impact on the economic value of the company). It allows “understanding the potential magnitude of the risk”, they highlight.

That Inditex and REE manage to be below 10 is meritorious , since only 1% of the companies analyzed by Sustainalytics achieve it. Precisely, Inditex occupies the first position, and REE the third, of the ESG Ranking of elEconomista , the classification of the Ibex companies that this newspaper makes, combining the scores awarded precisely by Sustainalytics), S&P Global, ISS, CDP and Bloomberg .

France and Germany score better
If, in the case of the Ibex, 37% of its components show a zero or low level of risk, this percentage rises to 50% in the case of the French Cac s, and even more, to 57% in that of the German Dax .

Of course, not a single company in the French index scores below 10 : the best in the table are the fashion house Hermes and the technology consultancy Capgemini, with ratings that exceed, even if only slightly, that 10. In the Dax, The most protected against sustainability threats are the real estate company Vonovia and the software manufacturer SAP, with scores of 6.7 and 9.7 out of 100, respectively.

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