Investors could have added 1.6% p.a. allocating to ESG – study

A new study has concluded that investors could have added 1.6% per annum to their returns over a five-year period by allocating to portfolios that invest in companies with above-average environmental, social and governance (ESG) ratings.

“The results of this study demonstrate that during the time period tested, investing in companies that operate best-in-class ESG strategies did not detract from returns,” the paper from asset firm RCM, part of Allianz Global Investors, states. “Even in extreme market conditions, performance was not negatively impacted.”

The outperformance was seen across the range of global sectors and geographies.

The 16-page paper – Sustainability: Opportunity or Opportunity cost? – is based on analysis from Michael Heldmann, a former researcher at the CERN particle physics laboratory, who is now in RCM’s Systematic Equity Team.It used base data from MSCI ESG research covering the December 2005-September 2010 period.

To derive the results, a series of portfolios were constructed using RCM’s five-level ESG rating scale.

“The perception that corporate efforts to become more sustainable reduce the value of companies and of investors’ portfolios is entrenched, but is based on largely unfounded assumptions and only thin academic evidence, RCM argues. “It is imperative to challenge this perception empirically because it is holding back the evolution of the nascent sustainability sector and of the wider corporate sector.”

Last month Responsible Investor reported that RCM, which has $153.7bn (€106.7bn) in assets under management or advice, may start filing shareholder resolutions as it seeks to raise its ESG profile.

RCM’s sustainability site