ESG equities outperform MSCI World over last 10 years – Oekom Research

Sep 22nd, 2017 | By | Category: Equities

By Jaspreet Duhra, senior client relations and head of oekom research’s London office, and Julia Haake, director of international business development and head of Paris office.

For more than a decade the most sustainable companies have outperformed the MSCI World, our data shows. Consequently, investors can expect to gain a ‘double dividend’: supporting sustainable business while earning returns equivalent to or higher than the broader market.

oekom research ESG equities outperform MSCI World over last 10 years

Jaspreet Duhra, senior client relations, and Julia Haake, director, international business development at oekom research.

We have long argued that companies which act in a socially and environmentally responsible way, for example by aspiring to be energy- and resource-efficient, by treating their employees and suppliers fairly and by adhering to principles of good governance, must also be economically more successful. Our latest research proves that this is not just a theory: investors who incorporate robust sustainability ratings into their capital allocation decisions have clear risk and return advantages compared to those who do not.

Between 1 January 2005 and 31 December 2016, the oekom Prime Portfolio Large Caps (PPLC) index, weighted by market capitalisation, achieved a cumulative return on investment (ROI) of 168.74%. The PPLC consists of large companies that have been awarded the oekom ‘Prime’ status, meaning they satisfy our industry-specific sustainability management requirements.

Cumulative ROI for the MSCI World Total Return Index over the period was lower, at 163.49%. Our PPLC’s annual return of 8.59% was higher than the benchmark’s 8.41%.

oekom research ESG equities outperform MSCI World over last 10 years

Source: oekom research.

Outperformance improves with equal weighting

If the oekom PPLC securities were weighted equally, that annual return rises to 10.94%.

The superior performance of the oekom PPLC, weighted by market capitalisation, also carries a level of risk comparable to that of the benchmark. At 13%, the annual risk (volatility) of the oekom PPLC over the period from 1 January 2005 to 31 December 2016 was only marginally higher than that of the conventional index, which stood at 12.70%. When the oekom PPLC is weighted equally, this figure stands at 15.63%.

oekom research ESG equities outperform MSCI World over last 10 years

Source: oekom research.

The ‘double dividend’ is real

This analysis shows that taking sustainability criteria into account does not necessarily entail lower returns or higher risk. Investors can even obtain a double dividend, generating returns that are at least in line with the market — and in some cases, as this one shows, even higher — while at the same time achieving social, environmental and/or ethical goals.

Tags: , , , ,

Leave a Comment