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July 16, 2012
Sustainable Large Caps Outperform MSCI World Index
    by Robert Kropp

An analysis by oekom research finds that investment in corporations designated by it as Prime Portfolio Large Caps can yield returns more than double that of those listed on the MSCI World benchmark.


For more than 18 years, the German-based rating agency oekom research has used the Frankfurt-Hohenheim Guidelines for ethical investment to rank the social and environmental performance of companies, industry sectors, and countries. The firm designates the best sustainability performers among the world's largest corporations as Prime Portfolio Large Caps (PPLC). The number of PPLCs currently stands at 300, located in 25 countries.

In the US, fewer than ten percent of the 554 companies listed in the MSCI World Index achieved oekom's Prime Status, according to the firm's 2012 Corporate Responsibility Review.

A recently published repor t from oekom reveals that sustainable investment in PPLCs can yield markedly better returns while decreasing portfolio volatility. During a seven-year period ending in December, 2011, the return on investment for oekom's PPLCs was 30.9%, which is 15.30% higher than that of the MSCI World Total Return Index.

Furthermore, the report continues, "If equal weighting is given to the securities in the oekom Prime Portfolio Large Caps, their cumulative return on investment actually rises to 62.84 per cent and thus at least double that of the MSCI World Total Return Index."

The volatility of the oekom portfolio was slightly less than that of the MSCI benchmark as well.

From a regional perspective, PPLCs in the Asia-Pacific outperformed the benchmark by the widest margin, followed by Germany. European PPLCs achieved about the same rate of return as their counterparts in the benchmark.

"The study clearly shows that consideration of environmental, social and governance criteria does not automatically entail lower rates of return or higher risk," the report concluded. "On the contrary: investors can obtain a double dividend by earning a rate of return which is at the very least in line with market rates, while at the same time pursuing social, environmental or ethical goals."

Robert Ha▀ler, CEO of oekom research, said, "The results of the study confirm our hypothesis that sustainability performance is a good indicator of companies' overall performance and that investors would be well advised to incorporate this indicator into their decision-making processes."

 

 
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