The use of environmental, social and governance (ESG) criteria when stock picking can lead to outperformance, according to a white paper from global asset manager RCM.
This challenges the view held by some that ESG can have a drag effect on returns.
Using data predominantly sourced from MSCI ESG Research, RCM’s sustainability research team discovered that portfolios investing in companies with above-average ESG ratings during the turbulent 2006-2010 period could have returned an extra 1.6% pa.
The findings were particularly marked for portfolios of European companies, RCM commenting that this reflects greater integration of ESG factors in Europe than in the US.
Bozena Jankowska, global head of sustainability research at RCM, said: “This study adds to the growing body of research that demonstrates that the introduction of ESG values into corporate strategy can lead to increased efficiency and innovation, and a consequent boost to revenues and profits.”
She added: “As ESG data becomes more widely reported, consistent and interpreted, investors can apply this information to the investment process with confidence. As market participants incorporate this information, we expect the impact on returns to increase going forward.”
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