A new partnership, the ESG Working Group, has been formed to emphasise the importance of ‘social’ within environmental, social and governance investing. In a white paper ‘Amplifying the “S” in ESG: Investor Myth Buster’ the group set out to address misperceptions about why social indicators, such as a company’s labour practices or community relations, matter and how or whether they can be integrated into investment analysis.
The paper said there is no evidence that greater focus on social indicators leads to diminished returns. In contrast, analysis of ESG fund performance over the last decade has shown that ESG funds show greater resilience during times of crisis. In March 2020 the MSCI World index lost 14.5%, but 62% of large cap ESG funds outperformed the index according to Amundi Asset Management.
There is also growing evidence that more diverse and inclusive companies tend to outperform their competitors. The paper said: “A 2019 International Finance Corporation study found that portfolio companies in emerging markets with gender- balanced leadership teams outperformed in valuation increases by as much as 25%, compared with non-diverse teams.”
An analysis of 11,000 publicly-traded companies by Nordea Bank found that companies run by women exceeded the benchmark index in all but one year since 2009. These companies also had a 25% annualised return over that time, more than double the 11% the MSCI World Index delivered based on equal weightings according to the report (see graph).
“At a time of low interest rates and low yields, spotting opportunities for improved returns can make a significant difference,” added the study. “In addition, socially responsible companies are better able to attract and retain talent, something that is of growing importance for future competitiveness.”
The ESG Working Group consists of the Thomson Reuters Foundation, Refinitiv, International Sustainable Finance Centre (ISFC), White & Case, Eco-Age, The Mekong Club, and the Principles for Responsible Investment (PRI) as a pro bono partnership that brings together civil society, experts and private sector.
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