I just recently went to the Goldman Sachs health care conference in Laguna Beach, CA and was surprised to see an analysis of the pharmaceutical industry which incorporated an ESG component. I've attached a slide from the presentation that summarizes the approach.

In addition to drug companies, Goldman is using this framework to analyze energy, media, mining & steel, and food & beverages companies. Not surprisingly, the companies that score well along their ESG parameters, which they refer to as the "ESG framework leaders" have superior returns versus peers and the market. In some cases the return differential was substantial. Mining & Steel ESG leaders outperformed peers and the market by 32% and 44%, respectively.

It's certainly great to see that Goldman and some of the other bulge bracket firms see the value in including ESG factors when performing security analysis. I think it is particularly interesting that Goldman is now exploring this area in light of their leadership in providing hedge fund services. Hopefully, there will eventually be some productive cross fertilization between Goldman's hedge fund services and their small but growing ESG research team. The field of ESG hedge fund investing would grow a lot faster if Goldman established one or more funds based on this approach. Goldman was one of the early investors in alternative energy and is now reaping the rewards of this investment. It is not inconceivable that they would consider ESG hedge funds as a potential early investment opportunity.