How does a company’s operations contribute to governance issues?
Government factors in ESG criteria relate to good corporate governance such as the following board issues: transparency and accuracy, accountability and independence, as well as diversity and structure. Shareholder protection is another key issue in this area. Strong management is key to a successful company. Having good corporate governance in place sets a strong foundation for how a company operates. Of the three pillars of ESG, it seems G has the highest correlation to stock performance.
Case Study: Case Study: Tesla (TSLA)
Tesla announced in early 2018 the details of a new 10-year long-term incentive plan for its Chairman and CEO Elon Musk. The compensation plan is entirely performance-based, consisting exclusively of stock options and does not include any base salary, cash bonuses or time-based share grants. The 12 equal payouts will be based on ambitious milestones for market capitalization and operational metrics. The plan also includes a five-year holding requirement. While TSLA will continue to be a very volatile stock at this stage of the company, shares are up 10% in the first quarter of 2018, supporting our proposition that ESG investing reduces risk and enhances odds of profitability.