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August 08, 2011
New Research Supports Outperformance of ESG Portfolios
    by Robert Kropp

A white paper by RCM studies data compiled by MSCI ESG Research and finds that a portfolio comprised of best-in-class companies outperforms benchmark over five years.


A recently published white paper by RCM, an asset management company, argues against what it describes as an entrenched perception "that corporate efforts to become more sustainable reduce the value of companies and of investors' portfolios."

Asserting that such a perception "is based on largely unfounded assumptions and only thin academic evidence," the white paper presents empirical evidence that the opposite is more likely the case; indeed, the integration of environmental, social, and corporate governance (ESG) criteria into investment decision-making can lead to "a probability of outperformance over the longer term."

Using data provided by
MSCI ESG Research for the years 2005-2010, RCM found that a portfolio of best-in-class companies outperformed the benchmark of the MSCI World Equal Weighted Index by 1.6%. Companies determined by MSCI to be worst-in-class, on the other hand, underperformed by 0.5%.

The white paper found that the largest spread between best-in-class and worst-in-class companies occurred in Europe, because as a concept ESG has, over time, become "more embedded in the minds of investors and companies" there. In the US, on the other hand, "investors are less convinced and/or knowledgeable about the impact of material ESG factors," the paper continued.

Bozena Jankowska, Global Head of Sustainability Research at RCM, stated, "This study adds to the growing body of research that demonstrates that the introduction of ESG values into corporate strategy can lead to increased efficiency and innovation, and a consequent boost to revenues and profits."

"As ESG data becomes more widely reported, consistent and interpreted, investors can apply this information to the investment process with confidence," Jankowska continued. "As market participants incorporate this information, we expect the impact on returns to increase going forward."

 

 
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