Hermes confirms “governance premium” in ESG investing

Two years on from research into the effects of corporate governance on investment returns, a pension scheme investor finds that poorly run companies still tend to underperform by an average of 30 basis points per month.

The research by London-based Hermes Investment Management – a fund manager owned by the British Telecom Pension Fund – found the same figure two years ago.

The firm’s latest report is called ‘ESG Investing: It still makes you feel good, it still makes you money’. Geir Lode, head of global equities, said it showed the “governance premium is well and truly entrenched” in returns.

The research found Japan’s ESG – or environmental, social and governance – scores lagged Asia Pacific ex-Japan, Europe and North America. While North American companies scored highest on corporate governance, environmental and social scores trailed.

Hermes examined equity returns from 2009-2016.

Lode said the governance premium held true across different geographies and sectors – albeit with a few caveats – proving the almost “universal power of effective corporate governance”.

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