Mark Mobius Favours This Parameter To Identify Top Investment Picks
Companies that score high on environmental, social and governance parameters offer better returns on investment, says Mark Mobius.
Companies that score high on environmental, social and governance parameters offer better returns on investment, according to veteran investor Mark Mobius.
“We would love a company that is improving its environmental, social and governmental standards,” Mobius, who set up Mobius Capital Partners LLP, told BloombergQuint. The veteran investor also endorse active investing in companies that rank higher in ESG in emerging markets, which may seem risky today but holds a promising future.
Mobius was in Mumbai to promote his book ‘Invest For Good – A Healthier World And A Wealthier You’, co-authored by Carlos von Hardenberg and Greg Konieczny.
Watch the interaction with Mobius here:
Here are the edited excerpts from the interview:
You have written about environment and social in one chapter and you have a completely different chapter for governance. So, lets say for example, you have a company which is doing very well in terms of environment and social; governance can always be a little more complicated which is where you may have a company which is high up in the E and S ladder; but in governance, there will always be issues when it comes to approvals to be sustainable in general to all three of them. Where does a company stand in that case? Do you think that investors will then catch a fancy because this is a problem which is very much in focus as far as countries such as India is concerned?
Well, that’s a very good point because there are companies that do comply with good environmental and social standards but are far behind on the corporate governance side. So, what we do is, we go and say, hey look, you are not getting very much in terms of your share price. People are not investing in your company mainly because you treat shareholders not in line with good standards.
For example, are you paying dividends? That’s a very important aspect of treating your shares properly. Second, how many independent directors do you have on your board? How many women do you have on your board? Questions like that, we ask and try to persuade and make changes when the ESG (environmental, social and governance) rankings are done. They will then have a higher ranking. Once they have a higher ranking, more investors will pay attention and invest in the fund.
But there is also the aspect about corruption. If your company is paying dividends, it has enough number of women on board, they’re doing everything else in their power in terms of governance. But then it comes to dealing with authorities, that remains a challenge. So that is something they have to tide over.
Well, we look at this very carefully. In fact, the most important part of our research is to look at the backgrounds running in the company. Have they have been involved in any fraudulent activities, is the company, under their direction, involved in these sorts of things. So, we absolutely reject these sorts of companies. Because we know, eventually, they will get into trouble.
I am going to move onto another example and this is what the book cites, the investment in an ESG-rated microfinance company in Botswana; Mark, if we apply the same example to India, this particular space is in a little bit of a flux. There are a lot of changes in regulations and often what happens in the microfinance sector can become a scapegoat to government policies. Will these companies will have to reach a particular mass or a certain size before they can actually be taken seriously? Especially when it comes to this aspect?
Not really. In fact, we look at smaller companies with a potential to become larger. So, that is really a focus and we would love a company that is improving its environmental, social and governmental standards and is willing to listen to us and make these improvements in conjunction with our advice because we then know that the share price would begin to appreciate. And they will also be able to raise more capital to expand. So, this all fits together when we are looking at these companies. So, small companies can be very viable in our eyes.
It is always going to be a challenge when it comes to the government’s point of things. The government will always want to give priority to growth against following certain environment standards or social initiatives. What are the challenges here and what does the government do?
So, this is what is being encountered in India and other countries around the world. They have begun to realise that their desire for rapid growth results in pollution, lowering of social standards, poor worker health, etc. And in the long term, results at higher costs to the government. So, this realisation is beginning to hit home in countries around the world and for that reason, they are beginning to think that maybe we should not be doing what we are doing and we should move in another direction.
Multilateral institutions like the World Bank are paying attention to this. So when they make loans, they say you are not complying to any environmental standards here. So we are not going to approve this loan unless you comply. And the same thing is true with big institutional investors. They are asking big companies to comply.