Strategic ESG Investing Yields Higher Returns
(3BL Media/Justmeans) – A study of the performance of companies on Fortune’s “100 Best Companies to Work For” list from 1984-2009 has found that stocks of these companies outperformed benchmarks by two to three percent per year. Therefore, ESG investors are increasingly seeking out sustainable companies, believing they will deliver better returns. The strategy is gaining in popularity: institutional funds’ total ESG assets doubled between 2012 and 2016.
New ESG ratings for mutual funds give investors far more funds to choose from. Some of these funds are impact investors, which engage with the companies they invest in and work to help them do better. Calvert International Opportunities, Parnassus Endeavor, and Oakmark International are examples of socially responsible funds.
Calvert International Opportunities is a diversified, impact-focused stock fund. It focuses on undervalued small-cap and mid-cap foreign stocks with good ESG policies. Calvert is also an impact investor that engages directly with companies to help them improve. The fund has performed well, up 26 percent for the 12 months ending July 31, 2017.
Many studies, including one published by the Harvard Business Review, show that socially responsible companies achieve higher profitability and stock performance than their counterparts. Taking a long-term, sustainable view ensures that a company can operate in perpetuity. Going beyond this, however, companies can provide products that provide solutions to ESG challenges.
The SerenityShares Impact ETF, launched in 2007, focuses its investments on these products, providing access to companies that are actively making improvements to the environment and society while outperforming the market. According to Bloomberg, about 84 percent of Millennials are interested in socially responsible investing, which indicates that demand for sustainable products will only increase.
In more traditional finance, Deutsche-Bank performed an analysis of more than 2,000 empirical studies dating back to the 1970s and found that about 90 percent of the studies suggested that ESG investing provides superior returns to passive investing.
This suggests that not only is ESG going to be more in-vogue in the future, but, over the long term, it should provide returns greater than funds that are not focused on ESG investing. For this reason, current investors and the largest financial advisors are also moving in this direction, creating another tailwind for ESG companies and investments.
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