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Stronger ranked ESG companies receive market premium

Technology_abstractTechnology companies with good environmental, social and governance (ESG) scores are perceived to be worth more by investors.

That is the conclusion of a report by Janus Henderson Investors, which analysed the value of 700 equities in the technology sector.

The Global Technology Leaders (GTL) team of Janus Henderson Investors published findings from a series of tests, which aimed to established whether there was a link between ESG considerations and a company’s valuation.

In a media statement on 7 March, Alison Porter, portfolio manager for the Janus Henderson Global Technology Leaders strategy, said the report demonstrated the importance of ESG factors, validating the team’s investment process, which incorporates an ESG scoring system.

She said: “Our team’s analysis shows empirically that companies which perform well on ESG metrics, and which can show significant improvement in these factors, will be valued more highly by investors in the markets and, crucially, that ESG factors must be an integrated part of the investment process.”

The team found that, on average, companies with good ESG credentials received a higher valuation multiple from the market than their peers with lower ESG scores. The team assessed valuation multiples for P/E, EV/sales and EV to EBITDA.

Porter added: “In our view, effective active engagement to improve environmental, social and governance aspects of performance is likely to have a positive impact on capital returns, however owning companies that are laggards on ESG metrics is appropriate only with a measured action plan.”

This report is the first to focus on valuation and exclusively on the technology sector as other studies have previously focused on stock price performance across multiple sectors.

It concludes that a focus on sustainability is likely to give companies in the technology sector a “significant” uplift to their valuation multiple.

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