GS SUSTAIN

The Corporate Commotion - a rising presence of ESG in earnings calls

Since our report A Revolution Rising - From low chatter to loud roar (April 2018), a virtuous cycle of ESG adoption has continued, driven by consumers, employees, regulators, corporates, NGOs and investors, leading to ESG strategy becoming a critical component of corporate & investor conversations. This report revisits our analysis using earnings transcript analysis tools to track the development of ESG themes over the past 5 years among global corporates in the S&P 500, STOXX 600 and ASX 200.

Five key takeaways from this report:

1. The majority of corporates are now discussing ESG, with the growth in mentions accelerating in the past 2 years. 65%, 66% and 72% of the S&P, STOXX and ASX constituents discussed ESG topics in the latest period (2Q; 1H for ASX), while the total volume of ESG comments has grown 10%, 12% and 6% (5 year CAGR 2Q15-2Q20) for each index, respectively.

2. The CEO is leading the discussion across all regions, with 47%, 45% and 49% of total comments coming from the CEO presentation in the latest period for the S&P, STOXX and ASX, respectively. ESG discussion in Q&A is also material, accounting for 37%, 39% and 32% of total comments for the S&P, STOXX and ASX.

3. Increased discussion appears to translate into better ESG performance on carbon and employee-related metrics. Matching relevant keywords, the top 10 commenters across Europe, US and Australia show signs of better ESG performance, momentum and target settings versus peers with no ESG commentary in earnings calls.

4. Trends in 1H20 during Covid show a decline in ESG discussion in 1Q, but a full recovery in 2Q. Employee-related keywords increased (554%, 544% and 313% yoy in 2Q20 for S&P, STOXX and 1H20 for ASX) while growth in Environmental topics slowed globally.

5. The most discussed topics across each sector reaffirm our view of materiality, with Utilities, Industrials, Energy and Materials most engaged on the "E" (Water, Carbon, Emissions, etc.) and Communication Services and Information Technology focused more on the "S" (Diversity & Inclusion, Governance and Employee Engagement).

ESG cementing its place on the corporate agenda

The majority of companies are now talking about ESG... Reviewing earnings calls transcripts over the last 5 years, we observe an increasing prevalence of companies discussing ESG topics, with 65%, 66% and 72% of S&P 500, STOXX 600 and ASX 200 constituents mentioning ESG keywords in the latest period (2Q; 1H for ASX) (Exhibit 1). This is up from 43%, 48% and 59%, respectively, 5 years ago.

...with the amount of unique ESG discussions also significantly on the rise... Over the same 5-year period, total ESG comments in earnings calls have increased at a 10%, 12% and 6% CAGR for the S&P, STOXX and ASX. This trend has accelerated in the last two years, with 2Y CAGRs (2Q18-2Q20) of 18%, 26% and 9% for the S&P, STOXX and ASX. (Exhibit 2, Exhibit 3, Exhibit 4).

...and is increasingly being led from the top. Of the total number of ESG comments in 2Q20, 47%, 45% and 49% were made by the CEO in the S&P, STOXX and the ASX (Exhibit 5, Exhibit 6, Exhibit 7). This is up from 24%, 29% and 36%, respectively, 5 years ago.

Recent global events have elevated social issues on the corporate agenda. Across all three regions, 'Employee'-related discussions have been the major focus in 1Q20 and 2Q20 (Exhibit 11, Exhibit 12, Exhibit 13). The most discussed Environmental topic in both the US and Australia was 'Water' across 1H20 earnings calls, with 'Carbon' most discussed in Europe (Exhibit 17). As the current pandemic unfolded, focus on ESG topics remained more resilient in Europe versus the US, with +3% yoy growth in 1Q20 for the STOXX vs. a -24% yoy decline in the US.

Sectors with the largest growth in ESG engagement in 2Q20 were Communication Services in the S&P (+200% yoy vs. +18% yoy for the broader index) (Exhibit 128), Real Estate in the STOXX (+138% yoy vs. +48% yoy for the broader index) (Exhibit 96), and Utilities for the ASX (+159% yoy vs. -4% yoy for the broader index) (Exhibit 31).

Other high-growth sectors in the S&P included Information Technology (+66% yoy) and Energy (+41% yoy); in the STOXX, Consumer Discretionary (+122% yoy) and Energy (+100% yoy); and in the ASX, Information Technology (+98% yoy) and Communication Services (+89% yoy).

More numbers are being used to articulate ESG strategy and performance, yet majority of ESG comments are still being discussed in a qualitative manner - presenting opportunities for differentiation and credibility. We detail the ESG trends for each GICS 1 sector the appendix and highlight notable ESG quotes.

Exhibit 1: The number of companies talking about ESG is growing in all three regions

% of companies mentioning ESG keywords in the S&P 500 and STOXX 600 (1Q15-2Q20) and ASX 200 (1H15-1H20)

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 2: Growth in S&P ESG discussions accelerated significantly from 2019 onwards

Total number of unique ESG keywords for S&P 500 companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 3: Similarly for Europe, growth has accelerated in recent years, despite more volatility between quarters

Total number of unique ESG keywords for STOXX 600 companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 4: In Australia, discussions have also increased since 2019

Total number of unique ESG keywords for ASX 200 companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

ESG a growing focus for the CEO in the US and Australia, with European companies fielding slight uptick in ESG questions from investors. Total comments made during CEO presentations in the US grew +67% yoy in 2Q20 (to 47% of total comments), and +2% yoy in the ASX (to 49% of total comments). In Europe, ESG questions are on the rise, growing 73% yoy in 2Q20 (to 12% of total comments), while the CEO presentation remains the major form of ESG comments (45% of total comments). Meanwhile, ESG discussions in Q&A are also prominent, with 37%, 39% and 32% of total comments coming during Questions and Answers in the most recent period for the S&P, STOXX and ASX.

Unsurprisingly, heavier sectors are the most engaged in ESG discussion, with ~2x greater proportion of total ESG comments vs. their weights in the benchmark. For the latest complete full year, across 2019, the combined proportion of total ESG comments made by Utilities, Industrials, Materials and Energy companies in the S&P, STOXX and ASX were 65%, 64% and 61%, respectively. This is significantly more overweight than their sector weights in each respective benchmark, with a combined 30%, 36% and 38% weighting in the S&P, STOXX and ASX. (Exhibit 8, Exhibit 9, Exhibit 10).

Significant focus on 'Employee' issues in 2Q20 slowed growth in Environmental discussions. In 2Q20, 'Employee' was the topic with the most growth across all three regions, with +554%, +544% and +313% yoy growth in the S&P 500, STOXX 600 and ASX 200, respectively. In comparison, discussions in 2Q20 on 'Carbon, Emissions & Energy', 'General Sustainability', and 'Water & Drought' grew modestly at +35%, +24% and -15% yoy respectively in the S&P 500, +96%, +50% and +3% in the STOXX 600, and +62%, +17% and -16% in ASX 200 (Exhibit 11, Exhibit 12, Exhibit 13).

Exhibit 5: Across the S&P, the CEO is mostly steering the ESG conversation...

% of total unique ESG comments for S&P 500 companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 6: ...a similar trend across the STOXX, with companies also facing more Q&A

% of total unique ESG comments for STOXX 600 companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 7: CEOs in the ASX are also the most engaged on ESG topics

% of total unique ESG comments for ASX 200 companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 8: In the US, Utilities and Industrials have consistently been the most engaged...

% of total unique ESG comments for S&P 500 companies by GICS 1 sector, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 9: ...similarly in Europe, where heavier sectors are leading the discussion

% of total unique ESG comments for STOXX 600 companies by GICS 1 sector, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 10: Materials are leading the discussion in Australia

% of total unique ESG comments for ASX 200 companies by GICS 1 sector, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 11: Employee-related discussions spiked in the US in the first half of 2020, amid the pandemic..

Year-over-year growth in ESG comments for S&P 500 companies by topic, 1Q16-2Q20

Excl. 'Employee' keyword

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 12: ...with similar trends seen across Europe...

Year-over-year growth in ESG comments for STOXX 600 companies by topic, 1Q16-2Q20

Excl. 'Employee' keyword

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 13: ...as well as in Australia

Year-over-year growth in ESG comments for ASX 200 companies by topic, 1H16-1H20

Excl. 'Employee' keyword

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

The majority of ESG discussions are coming from 4Q earnings calls, particularly in Europe. Across the S&P and STOXX, there are 20% and 68% more ESG discussions in 4Q earnings calls on average than in any other quarter (Exhibit 14), likely as year-end calls tend to be most focused on strategy and longer-term initiatives. Conversation in the ASX 200 is more evenly spread across 1H and 2H earnings (note that 1H earnings calls in Australia tend to be year-end earnings).

Exhibit 14: 4Q earnings calls tend to be most engaged in ESG discussions

Average number of unique ESG comments by quarter, S&P 500 and STOXX 600 (1Q15-2Q20) and ASX 200 (1H15-1H20)

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Our methodology

Partnering with our GS Data Works team, our transcript analysis utilizes Refinitiv earnings call transcripts data from 1Q15 to 2Q20 across the S&P 500, STOXX 600 and ASX 200. Of note, while most constituents are captured in our analysis, we make small volume adjustments where any transcripts have not been analysed by grossing up reported volumes. For example, if only 80% of companies have transcripts available we gross up the total number of unique ESG comments by dividing total volumes by 80%. While for the S&P and STOXX our analysis is quarterly, for the ASX the majority of companies report half-yearly, and thus our analysis is conducted accordingly. Our basis for analysis in trends and exhibits uses calendar quarters rather than reporting quarters.

The SPX, STOXX and ASX were selected to ensure global representation from companies which spoke English during their earnings call - necessary for the transcript tool. This report uses calendar quarters, e.g. earnings calls that relate to the Jan - March period are 1Q for the S&P and STOXX. Earnings calls relating to Jan - June period are 1H for the ASX.

The analysis includes 99 ESG keywords, grouped into 16 topics: Water & Drought; Human Capital Management; Carbon, Emissions & Energy; General Sustainability; Global Goals & Agreements; Corporate Social Impact; Plastic; Sustainability Reporting & Labels; Health & Safety; ESG Regulation; Governance; Data Privacy; Sourcing & Supply Chain; Waste & Recycling; Sustainable Investment; and Product Safety (see Exhibit 15 for keywords in each topic). A separate analysis for 2020 was also conducted on Employee and Covid-19 related keywords. We only consider unique ESG keywords in our analysis, meaning a keyword is only counted once even where a quote mentions that keyword multiple times.

The authors would like to thank Beatriz Rodeia, Xinyu Luo, and Raunak Chitlangia for their contributions to this report.

Exhibit 15: List of ESG keywords

Source: Goldman Sachs Global Investment Research

GS Data Works leverages alternative data sources and advanced analysis techniques to create unique data-driven insights across equity, credit and macro research. For this report, the Data Works team analyzed tens of thousands the GS SUSTAIN team corporate quarterly earnings’ transcript data that served as the basis for our research.

Links to performance: does increased ESG discussion translate into real outcomes?

Using our GS SUSTAIN ESG data framework, we consider whether the Top 10 companies by volumes of Carbon or Employee-related keywords discussed in 3Q19-2Q20 earnings call across each region ("Top 10") outperform on the relevant metrics versus regional peers with no discussion (Exhibit 16).

Our momentum framework tracks the change in the latest available data point over the average of the prior two years. See Momentum & Materiality -- Building blocks for ESG integration

Carbon-related keywords

The Top 10 carbon-related commenters in Europe already outperform on GHG intensity, with US & Australia's Top 10 showing the most improvement. Less surprising given Europe's focus on carbon for many years, the European Top 10 already show, on average, better performance on GHG intensity than companies in the region with no comments (73rd percentile vs 51st percentile). In contrast, the Top 10 underperform across both the S&P (34th percentile vs 51st percentile) and ASX (46th percentile vs 53rd percentile). However, the increased attention is translating into better momentum in both the S&P (-14% reduction for Top 10 vs -13% reduction for nil commenters) and ASX (-17% reduction vs -15% reduction). We also find that top commenters have a significantly higher presence of carbon reduction targets (80%+ vs. 25-52% for nil commenters), which provide a forward look into momentum performance (see Momentum & Materiality -- Building blocks for ESG integration)

The majority (80-90%) of each regions' Top 10 have carbon emission reduction targets, signaling the discussion is tied to the business strategy for these companies and not mere greenwash.

Employee-related keywords

In the US and Australia, Top 10 employee-related commenters have lower employee turnover, with Europe's Top 10 outperforming on momentum. Greater performance on employee turnover was observed by the Top 10 commenters in the S&P (57th percentile vs 43rd percentile for nil commenters) and ASX (41st percentile vs 30th percentile). The European Top 10 performed broadly in line with those companies with no employee-related discussion (46th percentile for Top 10 and nil commenters), but show substantially better improvement on reducing turnover (-2% reduction vs 6% increase).

The US and European Top 10 also outperform on women diversity, with all regions showing greater performance on momentum than regional companies with no employee-related comments. On our % of women employees metric, the Top 10 outperformed those with no comments in the S&P (62nd percentile vs 57th percentile) and the STOXX (68th percentile vs 52nd), while surprisingly the ASX Top 10 underperformed (55th percentile vs 59th percentile). However, all regions' Top 10 outperformed on momentum versus those companies with no comments. Top commenters also have more 'diversity and inclusion' (80-90%) targets than no commenters (37-74%).

The majority (80-90%) of all Top 10 employee-related commenters have diversity & inclusion targets in place.

Exhibit 16: Companies most engaged in carbon- and employee-related discussions tend to show positive links to performance

Average GS SUSTAIN metric performance of companies with the Top 10 most comments on carbon- and employee-related topics versus companies with no comments over the period 3Q19 to 2Q20

Source: Refinitiv, Bloomberg, Goldman Sachs Global Investment Research

Percentile performance is ranked relative to GS SUSTAIN sector peers in the MSCI ACWI. For more information on our methodology, see PM's Guide to the ESG Revolution 2 and Momentum & Materiality -- Building blocks for ESG integration.

Topics in focus: which ESG topics are most discussed?

The top 5 most discussed ESG keywords in the S&P 500 across 1Q20 and 2Q20 were 'Water', 'Environmental', 'ESG', 'Carbon' and 'Diversity & Inclusion' (Exhibit 17). This differs slightly from STOXX 600 where the most discussed keywords were 'Carbon', 'Water', 'Emissions', 'Environmental' and 'ESG'. In ASX 200, the most discussed keywords for 1H20 were 'Water', 'Recycle', 'Carbon', 'Environmental' and 'Emissions'.

'Carbon' stands out as the keyword discussed more in Europe than in the US and Australia. While the discussions are largely similar in all three regions, 'Carbon'-related discussions made up 11% of the unique ESG comments in Europe across 1Q20 and 2Q20, compared to 7% for both the US and Australia. In 2Q20, 24% of European companies also mentioned 'Carbon' at least once during their calls vs 13% and 18% for the US and Australia. However, on average, US companies mentioned 'Carbon' 2.6 times during 2Q20 vs. 3.1 and 2.7 for European and Australian companies.

Keyword category trends vary by region:

In Europe, 'Water & Drought'-related keywords were most common in earnings calls until 2019, after which the focus shifted towards more 'Carbon, Emissions & Energy'-related discussion (34% of total comments across 3Q19 to 2Q20) (Exhibit 19). The 'Carbon, Emissions & Energy' category was also the fastest growing over the past year (96% yoy in 2Q20).

In the US, 'Water & Drought' was the most discussed group of keywords in earlier periods, with the focus shifting towards more 'General Sustainability' (23% of total comments across 3Q19 to 2Q20) and 'Carbon, Emissions & Energy' (23% of total comments from 3Q19 to 2Q20)-related discussion over the past year (Exhibit 18). The topic 'Human Capital Management' saw the most notable growth over the past year (+446% yoy in 2Q20). In 1H20 earnings calls, 'Diversity & Inclusion' ranked among the top 10 most discussed keywords in 9 out of the 11 GICS sectors (top 5 in 7 out of the 11 sectors), and became the first and second most discussed keyword in Information Technology and Communication Services, where ESG discussions experienced the greatest growth.

In Australia, 'Water & Drought' has consistently been the most discussed topic since 2015 (23% of total comments across 2H19 to 1H20, although 'Carbon, Emissions & Energy' discussions have recently accelerated (24% of total comments 2H19 to 1H20) (Exhibit 20). In the past year, 'Sustainability Reporting & Labels' topics experienced the most growth (+101% yoy).

Exhibit 17: The most discussed themes vary by region, with the US and Australia most focused on Water and Europe most focused on Carbon

Top 10 most discussed unique keywords for the S&P 500, STOXX 600 and ASX 200 companies, across 1Q20-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 18: 'Water & Drought' has been the most discussed topic in the US this year...

Total number of unique ESG keywords grouped by topic for S&P 500 companies, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 19: ...while in Europe, 'Carbon, Emissions & Energy' has been the most discussed since 2019

Total number of unique ESG keywords grouped by topic for STOXX 600 companies, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 20: Similarly to the US, 'Water & Drought' has consistently been the most in focus for Australia

Total number of unique ESG keywords grouped by topic for ASX 200 companies, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

The rise of S in ESG in the age of COVID-19

Covid-19 elevated 'Employee'-related discussions... Employee and Covid-related topics peaked in 1Q20 earnings calls, with 94% of S&P constituents mentioning 'Employee' and 100% discussing 'Covid', versus 68% and 48% respectively in the previous quarter. (Exhibit 21). Of STOXX companies, 88% mentioned 'Employee' and 100% discussed 'Covid' in 1Q20, versus 58% and 21% in 4Q19 (Exhibit 22). In the ASX, 71% of constituents mentioned 'Employee' and 97% discussed 'Covid' in 1H20, versus 48% and 57% in 2H19 (Exhibit 23).

...growing over 2x in Europe and the US over the past year. Volumes of 'Employee'-related comments in the S&P grew +274% yoy from 2Q19 to 2Q20 (Exhibit 24). Among all keywords, 'Employee+Protect' saw the greatest growth, with 2Q20 volume over 15x the 2Q19 volume. Similarly, in the STOXX, volumes of 'Employee'-related comments grew +216% from 2Q19 to 2Q20 (Exhibit 25), with 'Employee+Safety' observing the most growth, over 20x the 2Q19 volume. In the ASX, volumes of 'Employee'-related comments grew +131% yoy in 1H20 from 1H19 (Exhibit 26), with 'Employee+Protect' increasing the most to 10x the 1H19 volume.

The employee-related analysis in this section was run separately from the broader list of ESG keywords analysed in other sections of this report.

Exhibit 21: An increase in Covid-19 discussions correlated with an increase in Employee-related comments for the S&P

Cumulative number of S&P 500 companies mentioning Employee-related and Covid-19 related comments by date, 2020 YTD

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 22: ...with similar trends seen for the STOXX

Cumulative number of STOXX 600 companies mentioning Employee-related and Covid-19 related comments by date, 2020 YTD

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 23: ...as well as the ASX

Cumulative number of ASX 200 companies mentioning Employee-related and Covid-19 related comments by date for 2H19 and 1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 24: In the S&P, all Employee-related discussions more than doubled from 2Q19 to 2Q20

Total number of employee related comments for S&P 500 companies by keyword, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 25: While in STOXX most topics also spiked from relatively low levels while some remained low

Total number of employee-related comments for S&P 500 companies by keyword, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 26: In ASX, Employee discussions were already growing before Covid-19, but gained momentum in 1H20

Total number of Employee-related comments for ASX 200 companies by keyword, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Appendix - sector findings

Below we highlight, by sector, the trends we have observed since 2015 across the US, Europe and Australia, including notable ESG discussions from recent transcripts touching on climate change pledges, ESG questions from investors and ESG discussions within Covid-19.

Utilities

100% of Utilities companies discussed ESG in the latest period. Across all regions, 100% of Utilities companies mentioned at least one ESG keyword in 2Q20 (Exhibit 27). On average, each S&P Utilities company made 8 comments (vs 3.7 in the broader index), each STOXX Utilities company made 10 comments (vs 4.9 in the broader index) and each ASX Utilities company made 19 comments (vs 5.5 in the broader index). In the US and Australia, Utilities companies mention more comments than any other sector, with European comments second only to Energy.

'Carbon, Emissions & Energy' is the most discussed topic by Utilities companies. The top five most discussed keywords across 1Q20 and 2Q20 were (Exhibit 28): S&P 500 - Carbon, Water, Emissions, Energy Efficiency and Renewable Energy; STOXX 600 - Water, Carbon, Recycle, Decarbonisation and Emissions; ASX 200 - Renewable Energy, Carbon, Emissions, Environmental and Decarbonisation.

Stronger growth in Utilities ESG comments than the broader indices in recent quarters. Growth in Utilities' ESG-related discussions has accelerated in recent years, despite the declines in 1Q20 largely due to the pandemic. Total ESG comments by Utilities in 2Q20 grew +12% yoy in the US (vs. +18% for the broader index), +60% yoy in Europe (vs. +48% yoy for the broader index) and +159% yoy in Australia (vs. -4% yoy for the broader index) (Exhibit 29, Exhibit 30, Exhibit 31).

Exhibit 27: 100% of Utilities in all regions discussed ESG in 2Q20

% of Utilities companies mentioning ESG keywords in the S&P 500 and STOXX 600 (1Q15-2Q20) and ASX 200 (1H15-1H20)

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 28: 'Carbon' most discussed in the US, 'Water' in Europe and 'Renewable Energy' in Australia

Top 10 most discussed keywords by S&P 500, STOXX 600 and ASX 200 Utilities, 1Q20-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 29: ESG discussions on the rise in the US since 2019, despite a dip in 1Q20 as Covid unfolded...

Total number of ESG comments for S&P 500 Utilities companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 30: ...a similar trend across Europe, despite more volatility...

Total number of ESG comments for STOXX 600 Utilities companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 31: ...while volumes peaked in Australia in 1H20

Total number of ESG comments for ASX 200 Utilities companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 32: The CEO has led most of the discussion across S&P Utilities...

% of total ESG comments for S&P 500 Utilities companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 33: ..as well as in the STOXX, albeit with some volatility between quarters...

% of total ESG comments for STOXX 600 Utilities companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 34: ...and similarly for Australia

% of total ESG comments for ASX 200 Utilities companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 35: In the US, 'Carbon, Emissions & Energy' has consistently been the most discussed ESG topic...

Total number of unique ESG comments per keyword for S&P 500 Utilities companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 36: ...while in Europe, 'Carbon, Emissions & Energy' overtook 'Water & Drought' to become the most discussed since 2018

Total number of unique ESG comments per keyword for STOXX 600 Utilities companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 37: In Australia, 'Carbon, Emissions, & Energy' is most in focus

Total number of unique ESG comments per keyword for ASX 200 Utilities companies by topic, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Notable Utilities ESG discussions from recent earnings

Carbon, Emissions, & Energy

  • On WEC Energy's earnings call 2020-08-04, the executive chairman stated that the company had achieved its 2030 carbon emission reduction target a decade early. The firm also announced 2 new targets to reduce carbon emissions by 70% below 2005 levels by 2030 and reach carbon neutrality for the generation fleet by 2050.

  • On ORSTED's earnings call 2020-01-30, the CEO highlighted the group's initiatives towards reaching carbon neutrality by 2025, including a 20GW on- and offshore renewable capacity build-out, a phase out of coal by 2023 and a commitment to 100% EVs by 2025. The company also stated it will engage with suppliers to decarbonise its procurement of components and vessel services related to offshore wind.

  • On The Southern Company's earnings call 2020-02-20, the CEO noted a 22% decrease in coal-powered production in 2019, reducing the contribution of coal profits to only 14% of total revenues. Since 2007, the company has reduced emissions by 44%, showing progress towards its 50% reduction target by 2030. The firm will continue to expand its renewable footprint across its portfolio, and expects to have over 15,000 MW of renewables by 2022 across state-regulated utilities.

  • On National Grid's earnings call 2019-11-14, the CEO reiterated the firm's commitment to support the UK's 2050 net zero target and announced £2bn investment in new interconnector capacity, which facilitates excess renewable energy sharing across countries. By 2024, the company will have 7.8GW of interconnector capacity equivalent to powering 8 million homes across the UK.

Water

  • On AWK's earnings call 2020-05-07, the CEO noted the basis for the group's earnings growth continues to be the capex made to provide clean, safe and reliable services. The firm has committed $20-22bn over the next 10 years to ensure service quality and reliability, and expand water and wastewater solutions across the country.

  • On SUEZ's earnings call 2020-02-26, the CEO highlighted the importance of wastewater maintenance and water reuse solutions, as water scarcity is threatening 2 billion people by 2030.

Industrials

A growing number of US Industrials are discussing ESG, with slight declines across Europe and Australia. 81% of Industrials in the S&P discussed ESG in 2Q20 earnings calls (vs 65% for the broader index), compared to 57% of Industrials in the STOXX (vs 66% for the broader index), and 67% of Industrials in the ASX in 1H20 calls (vs 72% for the broader index) (Exhibit 38).

'Water' and 'Environmental' are the most discussed keywords among all regions. The top five most discussed keywords across 1Q20 and 2Q20 were (Exhibit 39): S&P 500 - Water, Environmental, Fuel Efficiency, Recycle and Diversity & Inclusion; STOXX 600 - Water, Carbon, Environmental, Emissions and ESG; ASX 200 - Environmental, Recycle, Water, Plastic and Emissions.

The growth in ESG discussion lags the broader indices across all 3 regions. Total ESG comments by Industrials in 2Q20 grew 12% yoy in the US (vs. +18% for the broader index), +1% yoy in Europe (vs. +48% yoy for the broader index) and declined -25% yoy in 1H20 in Australia (vs. -4% yoy for the broader index) (Exhibit 40, Exhibit 41, Exhibit 42). Notably, however, US Industrials have since recovered from the decline in 1Q20, with European and Australian companies still far below 4Q19 levels in 2Q20.

Exhibit 38: ASX Industrials historically more engaged, with S&P and STOXX recently catching up

% of Industrials companies mentioning ESG keywords in the S&P 500 and STOXX 600 (1Q15-2Q20), and ASX 200 (1H15-1H20)

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 39: 'Water' most discussed in the US and Europe, and 'Environmental' in Australia

Top 10 most discussed keywords by S&P 500, STOXX 600, and ASX 200 Industrials, 1Q20-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 40: Flat growth from US Industrials since peaking in 2018, but strong recovery from 1Q20...

Total number of ESG comments for S&P 500 Industrials companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 41: ...while volumes peaked more recently for European Industrials in 4Q19...

Total number of ESG comments for STOXX 600 Industrials companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 42: ...and for Australia, peaking in 1H19 and remaining the most resilient region with respect to the Covid declines

Total number of ESG comments for ASX 200 Industrials companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 43: The CEO is taking a larger share of the conversation in the US...

% of total ESG comments for S&P 500 Industrials companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 44: ...with strong growth also for European CEOs...

% of total ESG comments for STOXX 600 Industrials companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 45: ...and a strong contribution from ASX CEOs

% of total ESG comments for ASX 200 Industrials companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 46: In the US, 'Water & Drought' has consistently been the most discussed topic

Total number of unique ESG comments per keyword for S&P 500 Industrials companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 47: In Europe 'Carbon, Emissions & Energy' has been the most discussed since 2019

Total number of unique ESG comments per keyword for STOXX 600 Industrials companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 48: In Australia, both 'Water & Drought' and 'Waste & Recycling' are most in focus

Total number of unique ESG comments per keyword for ASX 200 Industrials companies by topic, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Notable Industrials ESG discussions from recent earnings

General Sustainability

  • On Carrier's earnings call 2020-07-30, the CEO highlighted the recent publication of the company's first ESG report, stressing that ESG is core to the business and that the firm takes pride in being a leader.

  • On Delta Air Lines' earnings call 2020-01-14, the CEO reaffirmed the company's commitment and focus on ESG goals and requirements. The company acknowledged that its historically older fleet has opened an opportunity to make faster progress relative to peers with upgrades. Specifically, the company is adding 80 new planes to its fleet which are 25% more fuel-efficient than those retired. Also highlighted was the commitment to voluntarily cap the group's carbon footprint at 2012 levels.

  • On Rockwell's earnings call 2020-01-29, the CEO stressed the focus on product efficiency, highlighting the group's power control offering, variable speed drives, which dramatically reduces the amount of energy required to run industrial processes. The newly introduced eco industrial segment specifically targets energy efficiency/reduction in the renewables, water and waste water treatment, and mass transit industries. Additionally, the company provides technology and services aimed at automating safety, which will continue to be a focus for the company.

  • On Georg Fischer's earnings call 2020-02-26, the CEO noted 12% yearly growth in the group's cooling segment, supported by the new COOL-FIT 4.0 system which saves customers up to 30% of the energy used for the cooling application. For example, the system can help reduce the energy consumed by data centers (responsible for 3% of global electricity consumption), of which 40% of the total energy is used for cooling. Also highlighted was the 4% growth in its business supplying skids for water rehabilitation, with more than 200 million sales. Tackling water scarcity by providing further solutions will remain a focus.

Carbon, Emissions & Energy

  • On Eaton's earnings call 2020-07-29, the CEO highlighted the company's sustainability focus on capitalizing electrification secular growth trends across its businesses and in the energy transition. The company has reduced emissions by 16% since 2015 and is on track to deliver its 2025 targets. Additionally, the company has committed to science-based targets of reducing GHG emissions by 50% from 2018 levels and reaching carbon-neutrality by 2030. The speaker noted that this will be achieved via carbon offsets, a complete switch to renewable electricity and energy storage solutions delivery.

  • On Southwest Airlines' earnings call 2020-01-23, the CEO highlighted the firm's focus on sustainability, particularly on conservation and fuel economy. The MAX planes consume 15% less gas than other models, with the CEO stressing the importance of getting the airplane back in service. Additionally, the company notes that air traffic control systems can be modernised and there needs to be a commercially viable alternative fuel of adequate supply and reasonable pricing within the next 10 years, as there is only so much that can be offset before there just needs to be less carbon emitted.

  • On PACCAR's earnings call 2019-07-23, the CEO noted the company's focus on investing in future growth, with up to $725mn capex and up to $340mn in R&D this year on enhancing aerodynamic truck models, integrated powertrains, zero emissions electric and hydrogen fuel cell technologies, advancing driver assistance systems and truck connectivity. The company is enhancing manufacturing and distribution facilities, with a new robotic CAB build cell added recently to a truck factory and the new construction of a paint facility to lower operating costs and increase capacity and quality.

Human Capital - Engagement and Safety

  • On Meggitt's earnings call 2020-02-25, the CEO noted an 8% increase in employee engagement over the last 2 years, reaching the global high-performance norm level, which is based on data of employees who work at very high-performing global companies.

  • On Republic Services's earnings call 2020-02-13, the CEO highlighted a 100bps improvement in the company's overall employee engagement score to 86%, which the firm claims is well above national norms and high for the industry. Driver turnover was also reduced 100bps versus the prior year. The company views its people as the most critical component to successfully executing its strategy, noting that the business units with higher employee engagement have fewer safety incidents, better customer service and better financial performance.

Financials

A greater proportion of ASX Financials engage in discussion than in the S&P and STOXX. 72% of Financials in the ASX discussed ESG keywords in 2Q20 (vs. 72% for the broader index), compared with only 61% of Financials in the S&P (vs. 65% for the broader index) and 62% of Financials in the STOXX (vs. 66% for the broader index) (Exhibit 49).

'ESG' the hottest keyword mentioned in the US and Europe, with 'Governance' most common in Australia. The top five most discussed keywords across 1Q20 and 2Q20 are (Exhibit 50): S&P 500 - ESG, Governance, Environmental, Diversity & Inclusion and Sustainable Investing; STOXX 600 - ESG, Governance, Water, Environmental and Carbon; ASX 200 - Governance, ESG, Water, Environmental, Sustainable Investing and Recycle.

ESG discussions by Financials companies trending upwards overall and show greater growth than the broader index. Volumes of ESG comments from Financials companies have grown consistently between 2015 and 2020 in all three regions, despite the declines seen in 1Q20. Total ESG comments by Financials in 2Q20 grew +26% yoy in the US (vs. +18% yoy for the broader index), +20% yoy in Europe (vs. +48% yoy for the broader index) and +6% yoy in Australia (vs. -4% yoy for the broader index) (Exhibit 51, Exhibit 52, Exhibit 53).

Exhibit 49: Increasing proportion of Financials discussing ESG in all regions

% of Financials companies mentioning ESG keywords in the S&P 500 and STOXX 600 (1Q15-2Q20) and ASX 200 (1H15-1H20)

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 50: 'ESG' most discussed in the US and Europe, and 'Governance' in Australia

Top 10 most discussed keywords by S&P 500, STOXX 600 and ASX 200 Financials, 1Q20-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 51: ESG discussions on the rise in the US since 2015, despite a dip in 1Q20 as Covid unfolded...

Total number of ESG comments for S&P 500 Financials companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 52: ...a similar trend across Europe, despite more volatility...

Total number of ESG comments for STOXX 600 Financials companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 53: ...while volumes peaked in Australia in 2H16 and 2H19

Total number of ESG comments for ASX 200 Financials companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 54: Discussions during the company's presentations are the major source of discussion today across S&P Financials...

% of total ESG comments for S&P 500 Financials companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 55: ...as well as in the STOXX...

% of total ESG comments for STOXX 600 Financials companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 56: ...and similarly in the ASX

% of total ESG comments for ASX 200 Financials companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 57: In the US, 'General Sustainability' has consistently been the most discussed topic...

Total number of unique ESG comments per keyword for S&P 500 Financials companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 58: ...as well as in Europe...

Total number of unique ESG comments per keyword for STOXX 600 Financials companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 59: ...and in Australia

Total number of unique ESG comments per keyword for ASX 200 Financials companies by topic, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Notable Financials ESG discussions from recent earnings

General Sustainability

  • On Moody's earnings call 2019-10-30, the president of Moody's Investors Service discussed growth in the labelling of sustainability-linked bonds and loans, driven by investor demand for ESG-compliant securities, market focus on climate risk and issuers wanting to demonstrate their own sustainability credentials. With the acquisition of Vigeo Eiris, Moody's believes it is well-placed to be a leader in the space.

  • On S&P Global's earnings call 2019-10-29, the CEO observed that the growing focus on the energy transition and climate change is creating increased demand for a combination of ESG products, such as the 0.5% IMO sulphur product which is moving to the CME and ICE exchanges as futures. The company is focused on trying to identify what the next biggest trends are going to be impacting financial and market decisions and how S&P can create product and services addressing these trends.

  • On BlackRock's earnings call 2020-01-15, the CEO highlighted that sustainability has reached an inflection point, with more clients focused on the ESG factors of their portfolios due to alignment with values, but increasingly because of the financial risk and returns implications due to sustainability and climate change. The letter sent to all CEOs reiterated the view that we are entering a new era of finance, where the investment risk associated with climate change would drive significant reallocation of capital, and that corporates, investors and regulators need to be better prepared.

  • On Intermediate Capital's earnings call 2020-06-04, the CEO noted that ESG was a key focus for the group's Capital Markets Day, a theme of importance reminded by the crisis. ESG is a fundamental trend and an integral part of its strategy and investment approach. The firm is committed to continue building on its solid ESG reputation within its industry. Recent business strategies have had an ESG component, including an exclusive current renewables energy transaction and recently commissioned climate change study aiming to help portfolio companies and the firm assess and take into account climate change risk, applying it throughout their investment decision-making and portfolio management processes.

  • On MSCI's earnings call 2020-07-28, the chairman and CEO highlighted strong performance from the ESG franchise, reaching a runrate of $174mn and the highest ever ESG research quarterly subscription sales. AUM in equity ESG and climate change ETFs linked to MSCI indices grew to $55bn, an almost two-fold increase in the last year. The group has observed increased investor adoption of its ESG and climate change tools to build resilient portfolios, believing that its long-held belief in sustainable investing being critical to the long-term investment process has helped it capitalise on being an early mover to now being a leader in the space.

Energy

The majority of the Energy sector is discussing ESG across all regions... The proportion of Energy companies engaged in ESG conversation in 2Q20 was 96% in the US (vs 65% for the broader index), 89% in Europe (vs 66% for the broader index) and 100% in the ASX (vs 72% for the broader index) (Exhibit 60). On average, each S&P Energy company made 4.6 comments (vs 3.7 in the broader index), each STOXX Energy company made 13.1 comments (vs 4.9 in the broader index) and each ASX 200 Energy company made 7.1 comments (vs 5.5 in the broader index).

...with discussions most focused on 'Carbon'. The top five most discussed keywords across 1Q20 and 2Q20 are (Exhibit 61): S&P 500 - Carbon, Water, Emissions, Environmental and ESG; STOXX 600 - Carbon, Emissions, Water, Environmental and ESG; ASX 200 - Carbon, Emissions, Water, Environmental and Safety Performance.

Energy companies have shown superior growth in volumes relative to the broader indices for all three regions. Total ESG comments by Energy companies in 2Q20 grew +41% yoy in the US (vs. +18% yoy for the broader index), +100% yoy in Europe (vs. +48% yoy for the broader index) and +62% yoy in Australia (vs. -4% yoy for the broader index) (Exhibit 62, Exhibit 63, Exhibit 64).

Exhibit 60: Around 90% of Energy in all regions discussed ESG in 2Q20

% of Energy companies mentioning ESG keywords in the S&P 500 and STOXX 600 (1Q15-2Q20) and ASX 200 (1H15-1H20)

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 61: 'Carbon' most discussed across all regions, most notably in Europe

Top 10 most discussed keywords by S&P 500, STOXX 600 and ASX 200 Energy, 1Q20-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 62: ESG discussions in the US accelerated in 2019...

Total number of ESG comments for S&P 500 Energy companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 63: ...while in Europe ESG discussions show a positive trend with spikes around yearly FY/E calls...

Total number of ESG comments for STOXX 600 Energy companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 64: ...while volumes in Australia accelerated in 2H19

Total number of ESG comments for ASX 200 Energy companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 65: Q&A has led most of the discussion across S&P Energy...

% of total ESG comments for S&P 500 Energy companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 66: ...in the STOXX, the share of discussion in the CEO presentation rises over time

% of total ESG comments for STOXX 600 Energy companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 67: Across ASX Energy, the CEO has led most of the discussion

% of total ESG comments for ASX 200 Energy companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 68: In the US, 'Water & Drought' is the most discussed topic...

Total number of unique ESG comments per keyword for S&P 500 Energy companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 69: ...while in Europe, 'Carbon, Emissions & Energy' is the most discussed

Total number of unique ESG comments per keyword for STOXX 600 Energy... companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 70: ..as well as in Australia

Total number of unique ESG comments per keyword for ASX 200 Energy companies by topic, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Notable Energy ESG discussions from recent earnings

Carbon, Emissions & Energy

  • On National Oilwell Varco's earnings call 2020-02-07, the CFO noted a focus on leveraging the company's core competencies to help develop solutions that minimise its customers' environmental footprint while improving operational efficiencies. For example, the company's new PowerBlade system reduces the carbon footprint and cost of fuel for drilling contractors by recycling energy the system captures back into the rig. They estimate this could reduce diesel consumption by 771,000 gallons per year, saving $1.75mn, reduce NOx emissions by 110 tons per year and reduce CO2 emissions by 6,200 tons per year.

  • On Worley's earnings call 2020-02-23, the CEO highlighted the shift in power investment towards renewables and all other low-carbon technologies as the world continues to electrify. With the decline in coal-fired plants and slowdown in new gas-fired plants, the firm observe high demand growth in offshore wind technology, which requires significant investment in enhancing power networks to cope with changing loads and supply patterns. Notably, the speaker says a 50% increase by 2040, or $3.2tn annually, in global investment into the energy mix is required if the Paris-aligned targets are to be achieved.

General Sustainability

  • On Valero Energy's earnings call 2020-01-30, the CEO noted the continued focus on the group's renewable fuels business, with a new renewable diesel plant as part of its Diamond Green Diesel joint venture (pending approval) expected to increase renewable fuels production capacity to over 1.1 billion gallons annually or over 70,000 barrels per day when operations commence in 2024. The firm expects 2020 capex to be c.$2.5bn, consistent with average spend over the last 6 years, with c.$1bn allocated for high-return growth projects that are focused on market expansion and margin improvement, and for maintaining safe, reliable and environmentally responsible operations. The company has a favourable outlook on refining margins with the IMO 2020 low sulfur fuel oil regulation, with Valero seeing itself as well positioned to take advantage of discounted high sulfur crude and fuel oils as feedstocks. The diesel segment also continues to generate strong results due to higher renewable fuels demand.

  • On Neste's earnings call 2020-04-24, the CEO highlighted the ongoing commitment from its customers to reduce their carbon footprint. Key initiatives were discussed, including a new sales agreement on sustainable aviation fuel with Finnair and JetBlue, the Mahoney Environmental acquisition that supports building a global waste and residue feedstock platform to meet the world's growing demand for renewable products, the strategic cooperation with Borealis for production of renewable polypropylene, and joint investments with Mirova in recycling technologies to accelerate the developments of chemical recycling and foster the transition to a circular economy for plastics. The company has also taken a minority stake in Sunfire, which has patented technology to allow production of renewable hydrogen and direct conversion of water and CO2 into raw materials for petrochemical products.

  • On Oil Search's earnings call 2020-02-25, an MD and director acknowledged the strategic review will reevaluate the company's long-term vision, including how to proactively manage risk to deliver PNG assets in a sustainable, environmentally responsible and profitable way through project execution. The firm will consider how the company is positioned among the global energy business and how the company can evolve with technological changes and ESG considerations.

Materials

Over 95% of Materials companies in the US and Europe discussed ESG in 2Q20. 96% of Materials companies in the S&P (vs 65% for the broader index) and 100% of Materials in the STOXX (vs 66% for the broader index) discussed ESG keywords in 2Q20, while 84% of Materials were engaged in the ASX (vs 72% for the broader index) (Exhibit 71).

'Carbon' more in focus across Europe and Australia than with their US peers. The most discussed keywords across 1Q20 and 2Q20 were (Exhibit 72): S&P 500 - Plastic, Recycle, Water, Carbon and Environmental; STOXX 600 - Carbon, Recycle, Water, Emissions and Plastic; ASX 200 - Carbon, Environmental, Recycle, Emissions and Water.

Steady growth in the prevalence of ESG discussion over the years. Across all three regions, growth in total comments was notable in earlier years, but has slowed relative to the broader indices in recent quarters, likely due to the already higher engagement relative to other sectors. In the US, total ESG comments by Materials in 2Q20 grew +14% yoy (vs. +18% yoy for the broader index), in Europe +49% yoy (vs. +48% yoy for the broader index) and in Australia declined -29% yoy (vs. -4% yoy for the broader index) (Exhibit 73, Exhibit 74, Exhibit 75).

Exhibit 71: Over 95% of Materials in the US and Europe discussed ESG in 2Q20

% of Materials companies mentioning ESG keywords in the S&P 500 and STOXX 600 (1Q15-2Q20) and ASX 200 (1H15-1H20)

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 72: 'Plastic' most discussed in the US, and 'Carbon' in Europe and Australia

Top 10 most discussed keywords by S&P 500, STOXX 600 and ASX 200 Materials, 1Q20-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 73: ESG discussions in the US grew consistently and spiked in 2019...

Total number of ESG comments for S&P 500 Materials companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 74: ...a similar trend across Europe...

Total number of ESG comments for STOXX 600 Materials companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 75: ...while Australian volumes grew substantially in 2018 but declined in 1H20

Total number of ESG comments for ASX 200 Materials companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 76: Q&A and management presentations took up a similar share of ESG discussions across S&P Materials...

% of total ESG comments for S&P 500 Materials companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 77: ...as well as in the STOXX

% of total ESG comments for STOXX 600 Materials companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 78: In Australia, the CEO presentation leads discussion

% of total ESG comments for ASX 200 Materials companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 79: In the US, 'Water & Drought' is the most discussed ESG topic...

Total number of unique ESG comments per keyword for S&P 500 Materials companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 80: ...while in Europe, it is 'Carbon, Emissions & Energy'...

Total number of unique ESG comments per keyword for STOXX 600 Materials companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 81: ...as well as in Australia

Total number of unique ESG comments per keyword for ASX 200 Materials companies by topic, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Notable Materials ESG discussions from recent earnings

Plastic

  • On Eastman Chemical Company's earnings call 2020-08-04, the CEO highlighted the group's carbon renewal technology which repurposes its gas fire to reforming waste plastic, using the gas fire instead of coal to completely clean up the waste plastic to its molecular elements and rebuild acetyls and cellulosic products. Using this technology, the new Naia product already has 50% bio content from sustainably grown forest, with the other half soon to be based on recycled plastic - making them as biodegradable as microfibers in the ocean. The company has had significant interest already from a number of customers, including H&M which has included the technology in their conscious collection.

  • On Sealed Air's earnings call 2020-08-06, the CEO, president and director emphasized sustainability as core to the group's corporate strategy. The firm's commitment to meeting the 2025 sustainability pledge and drive a circular economy for plastics was reinforced, with initiatives including collaborating with industry pioneers, R&D of advanced technologies and implementation of new solutions. Most recently, the firm made a $2.5mn equity investment in Plastic Energy Global and entered an agreement on joint R&D to further the recyclability of plastic waste.

Carbon, Emissions & Energy

  • On Air Products and Chemicals' earnings call 2020-07-23, the Chairman, President and CEO stated they were very enthusiastic about carbon capture and had numerous projects in development. The speaker commented that carbon capture and hydrocarbons will be a huge business, and that the company has projects in the works that may result in real commercial proposals in the next 2-3 years.

  • On Glencore's earnings call 2020-02-18, the CEO discussed the group's commitment to a low-carbon economy, including the 2019 capex spent on energy transition materials such as copper, cobalt and nickel. For example, the Katenga asset will this year produce 30-32,000 tonnes of cobalt, and the company will increase nickel production in Canada which is used in battery production.

  • On Fletcher Building's earnings call, the CEO noted the increasing consumer appetite to opt for lower carbon options, given that cement manufacturing contributes around 8% of the world's carbon emissions. The speaker discussed some of the company's low-carbon initiatives and advantages, including its competitively priced cement with a 20% lower embedded carbon than imports, the Tyre Derived Fuel project which achieves more efficiencies in its cost base and consumes up to 50% of New Zealand's waste tyres, and working on introducing pozzolans as a cement substitute.

Health Care

ESG-related discussions are relatively scarce within Health Care... Across all regions, the number of Health Care companies discussing ESG is underweight the broader benchmarks. In 2Q20, the proportion was 43% in the US (vs 65% for the broader index), 43% in Europe (vs 66% for the broader index) and 55% in Australia (vs 72% for the broader index) (Exhibit 82).

...with the most discussed topics differing between region. The most discussed topics in across 1Q20 and 2Q20 were (Exhibit 83): S&P 500 - Water, Environmental, Employee Safety, Plastic and Diversity & Inclusion. STOXX 600 - Water, Environmental, Carbon, Emissions and Injury; ASX 200 - Governance, Water, Environmental, Social Responsibility and ESG.

Comment volume has continued to decline, before any impact from the pandemic in 1Q20. While we have seen a gradual decline in volumes over the past 5 years in the US, total comments made by Health Care companies in Europe and Australia peaked in 2018 and have rapidly declined since. In 2Q20, US volumes by Health Care declined -11% yoy (vs. +18% yoy for the broader index), Europe grew +1% yoy (vs. +48% yoy for the broader index) and in Australia declined -33% yoy (vs. -4% yoy for the broader index) (Exhibit 84, Exhibit 85, Exhibit 86).

Exhibit 82: ESG discussion is less of a priority for Health Care companies

% of Health Care companies mentioning ESG keywords in the S&P 500 and STOXX 600 (1Q15-2Q20) and ASX 200 (1H15-1H20)

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 83: 'Water' most discussed in the US and Europe, and 'Governance' in Australia

Top 10 most discussed keywords by S&P 500, STOXX 600 and ASX 200 Health Care, 1Q20-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 84: ESG volumes have been declining in the US

Total number of ESG comments for S&P 500 Health Care companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 85: European volumes saw moderate growth, albeit volatile

Total number of ESG comments for STOXX 600 Health Care companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 86: In Australia volumes peaked in 2018 but fell in recent quarters

Total number of ESG comments for ASX 200 Health Care companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 87: Management presentations led the majority of ESG discussions in the latest quarter across S&P Health Care

% of total ESG comments for S&P 500 Health Care companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 88: ..while presentations saw growing share of ESG discussions in Europe

% of total ESG comments for STOXX 600 Health Care companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 89: In Australia, the majority of ESG comments came from CEO presentations

% of total ESG comments for ASX 200 Health Care companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 90: In the US, 'Water & Drought' is the most discussed topic...

Total number of unique ESG comments per keyword for S&P 500 Health Care companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 91: ...while it is 'General Sustainability' in Europe...

Total number of unique ESG comments per keyword for STOXX 600 Health Care companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 92: ...as well as in Australia

Total number of unique ESG comments per keyword for ASX 200 Health Care companies by topic, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Notable Health Care ESG discussions from recent earnings

General Sustainability

  • On Eli Lilly and Company's earnings call 2020-01-30, the CEO discussed how Insulin Lispro helped nearly 79,000 US patients during December, complementing existing offerings from its Diabetes Solution Centre which helps 20,000 patients per month to better afford their insulin. The company commits over $5bn pa in long-term R&D and is committed to continuing pursuing sustainable business, social and environmental practices.

  • On Novartis' earnings call 2020-01-29, the CEO showcased the Novartis in Society Report, which details the group's key ESG metrics increasingly needed by investors and ratings agencies. Recent commitments were flagged, including reducing the launch time lag for innovative medicines to less than 3 months for low- and middle-income countries vs the US and Europe, committing to carbon neutrality by 2025 and tackling Scope 3 emissions, and delivering on the UN Equal Pay for Equal Work and Gender Equity goals.

  • On AstraZeneca's earnings call 2020-02-14, the CEO announced that the firm had reduced carbon emissions from operations by almost a third and water consumption by almost a fifth, but acknowledged that more progress is needed and that efforts would be increased.

  • On Estia Health's earnings call 2020-02-24, the CEO highlighted initiatives including the completion of the current phase of the group's solar and LED lighting program that would enable 63 homes to be retrofitted with energy-efficient systems, a new program to replace inefficient water heating and gas dryers, and a partnership with a third party for electricity usage monitoring. Further, the company completed an environmental and social risk baseline assessment, and has commenced a climate change resilience assessment for its assets.

Real Estate

ESG has become a greater priority for European Real Estate than elsewhere. Mostly all (96%) of European Real Estate companies discussed ESG in 2Q20 earnings calls (vs 66% for the broader index), compared to only 68% of US Real Estate (vs 65% for the broader index), and 82% of Australian Real Estate (vs 72% for the broader index) (Exhibit 93).

Environmental themes most in focus across each region. The most discussed topics across 1Q20 and 2Q20 (Exhibit 94) were: S&P 500 - Recycle, Water, Corporate Responsibility, Governance and ESG; STOXX 600 - ESG, Carbon, Energy Efficiency, Water and Environmental; ASX 200 - Recycle, Carbon, Water, Governance and Emissions.

Accelerated volumes across Europe and Australia from 2019, with the US focus clearly cyclical based on reporting quarter. Total ESG comments from Real Estate in 2Q20 grew +5% yoy in the US (vs +18% yoy for the broader index), +138% yoy in Europe (vs +48% yoy for the broader index) and +3% yoy in Australia (vs. -4% yoy for the broader index) (Exhibit 95, Exhibit 96, Exhibit 97).

Exhibit 93: 96% of Real Estate in Europe discussed ESG in 2Q20

% of Real Estate companies mentioning ESG keywords in the S&P 500 and STOXX 600 (1Q15-2Q20) and ASX 200 (1H15-1H20)

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 94: 'Recycle' most discussed in the US and Australia, and 'ESG' in Europe

Top 10 most discussed keywords by S&P 500, STOXX 600 and ASX 200 Real Estate, 1Q20-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 95: ESG discussion has seen an upward trend since in the US since 2016

Total number of ESG comments for S&P 500 Real Estate companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 96: In Europe, growth was slow until it accelerated in 2019

Total number of ESG comments for STOXX 600 Real Estate companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 97: In Australia, volumes accelerated in 2019, but fell in recent quarters as Covid unfolded

Total number of ESG comments for ASX 200 Real Estate companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 98: Management presentations led most of the discussions across S&P Real Estate...

% of total ESG comments for S&P 500 Real Estate companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 99: ...similarly for STOXX Real Estate...

% of total ESG comments for STOXX 600 Real Estate companies by speaker, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 100: ...and even more notably in the ASX

% of total ESG comments for ASX 200 Real Estate companies by speaker, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 101: In the US, 'Waste & Recycling' is the most discussed topic...

Total number of unique ESG comments per keyword for S&P 500 Real Estate companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 102: ...while in Europe 'Carbon, Emissions & Energy' has recently taken over...

Total number of unique ESG comments per keyword for STOXX 600 Real Estate companies by topic, 1Q15-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 103: ...as well as in Australia

Total number of unique ESG comments per keyword for ASX 200 Real Estate companies by topic, 1H15-1H20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Notable Real Estate discussions from recent earnings

Waste & Recycling

  • On Charter Hall Retail Real Estate Investment Trust's earnings call 2019-08-15, the CEO of Retail, Fund Manager and ED noted that the firm had implemented waste management programs to double landfill diversion rates across the portfolio, and additionally recycled 90 million containers through an ongoing recycling partnership with TOMRA. The company is also committed to engaging with the communities within which it operates.

Carbon, Emissions & Energy

  • On British Land Company's earnings call 2020-05-27, the CFO reiterated the group's key commitment to reach net zero carbon by 2030, which includes initiatives such as ensuring all future developments are net zero, that all developments have 50% less embodied carbon, and by reducing operational carbon by a further 75%. The company’s approach is based on the reuse, recycle, and resource sustainably, with offsets only being used as a last resort.

  • On Vornado Realty Trust's earnings call 2020-02-19, the President noted the company’s priority to reduce its carbon footprint and mitigate its contribution to climate change. Over the past 10 years, the company has reduced same-store energy consumption by 25%, aiming for further progress through continued energy retrofits, smart building technology and tenant engagement. Renewable energy is also in focus as the company transitions towards carbon neutrality. Recent achievements were used to evidence the company’s position against recently introduced climate laws, such as being Energy Star Partner of the Year for the seventh time and a NAREIT Leader in the Light Award recipient for the tenth year in a row. The speaker also states the firm is a top performer among global real estate sustainability benchmark respondents and has been cited as the industry model for its audited ESG reports by the SEC.

General Sustainability

  • On LEG Immobilien's earnings call 2020-05-11, the CEO discussed the firm’s commitment to all aspects of ESG and target setting. Notably, the company is continuing to modernize 3% of its portfolio to improve energy efficiency, and is working to adopt new ESG reporting standards, such as TCFD and SASB.

  • On Dexus's earnings call 2020-02-05, the CEO discussed how the Australian bushfire events put in focus the impact that the environment can have on communities, and that the firm remains focused on enhancing property resilience to mitigate environment- and climate-related impacts. In the company’s journey towards net zero emissions, its off-site renewable energy supply agreement has commenced across NSW, and the presenter notes that the firm achieved excellent results across leading global ESG benchmarks.

  • On Charter Hall Group's earnings call 2020-02-19, the CIO highlighted that the company already has the largest Green Star rated portfolio in the country, but is continuing to look for further opportunities to improve. The company now has net zero targets for all assets within operational control by 2030 and is focused on working with tenants and contracts to further help reduce emissions. The company is putting climate change adoption plans in place across its portfolio and will continue rolling out solar with 6.9MW of solar PV, up 1.7MW in the latest period, generating enough power for 314 homes across its assets.

Consumer Staples

Australian Consumer Staples companies more engaged than their US and European peers. 89% of Australian Consumer Staples companies discussed ESG in 2Q20 (vs 72% for the broader index), compared with 62% of US Consumer Staples (vs 65% for the broader index) and 58% of European Consumer Staples (vs 66% for the broader index) (Exhibit 104).

'Water' mostly in focus across all regions. The most discussed keywords across 1Q20 and 2Q20 were (Exhibit 105): S&P 500 - Water, Diversity & Inclusion, ESG, Employee Safety and Environmental; STOXX 600 - Water, ESG, Carbon, Plastic and Environmental; ASX 200 - Water, Environmental, Recycle, Carbon and Plastic.

Accelerating volumes in Europe and Australia were halted by the pandemic, while growth has remained constant in the US. Total ESG comments by Consumer Staples in 2Q20 grew +21% yoy in the US (vs +18% yoy for the broader index), +35% yoy in Europe (vs +48% yoy for the broader index) and declined -14% yoy in Australia (vs. -4% yoy for the broader index) (Exhibit 106, Exhibit 107, Exhibit 108).

Exhibit 104: 89% of Consumer Staples in the ASX 200 discussed ESG in 2Q20

% of Consumer Staples companies mentioning ESG keywords in the S&P 500 and STOXX 600 (1Q15-2Q20) and ASX 200 (1H15-1H20)

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research

Exhibit 105: 'Water' most discussed in all regions

Top 10 most discussed keywords by S&P 500, STOXX 600 and ASX 200 Consumer Staples, 1Q20-2Q20

Source: Refinitiv, data compiled by Goldman Sachs Global Investment Research