Poor ESG Profile Could Shut Off Access to Capital, Amundi Says

(Bloomberg) -- With investors pouring record amounts of cash into funds that focus on environmental, social and governance themes, companies that fare poorly on these counts could see their access to fresh equity curtailed, according to Europe’s largest asset manager.

“The direction of travel is that ESG matters more and more, so it’s fair to conclude that access will be very difficult for companies with poor ESG credentials,” Amundi SA’s head of equities Kasper Elmgreen said in a telephone interview.

“The sequence is high cost of capital at first, and then in the worst cases there will be no access to markets,” he said. Paris-based Amundi had 1.59 trillion euros ($1.9 trillion) of assets under management as of July 30.

Investment managers are becoming stricter on what they can own, swelling sustainability-focused funds even as other European equity strategies bleed money. As a result, the pool of capital available for companies outside the strong ESG universe is shrinking.

The same dichotomy is already visible in the market for initial public offerings. Czech firearms producer Ceska Zbrojovka Group SE this month scaled back its deal by as much as 80% after international funds, restricted by their internal ethical investment criteria, spurned the share sale.

CZG’s listing came on the heels of KKR & Co.-backed military supplier Hensoldt AG’s float in Frankfurt, which priced at the bottom of an indicative range with fewer shares sold than initially anticipated. The stock dropped when it opened and has since traded below the IPO price.

Yet, green listings continue to be favored by investors even as markets turn rocky. Soltec Power Holdings SA, a Spanish maker of solar-panel parts, priced its IPO at the top end of original expectations this week and jumped in its debut Wednesday.

Sustainable stocks have also held up better than most in the current crisis. This year, the MSCI Europe ESG Leaders Index dropped 11%, compared with a 15% slump for the MSCI Europe gauge, in U.S. dollar terms.

Meanwhile, exchange-traded funds built around the investment strategy have attract record inflows in 2020, already triple those of last year.

“This ESG wave is one of the biggest structural trends in asset management,” Elmgreen said. However, there’s some leeway in the definition, as Amundi’s investment universe also includes companies trying to better their track record on sustainability. “It’s not just about best-in-class firms, it’s also about those that are making genuine commitments to improve.”

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