Good companies with positive characteristics tend to outperform their lower-ranked peers according to new research from the Global Equities team at Hermes Investment Management.

ESG Investing: A Social Uprising, examines the impact of environmental, social and governance (ESG) factors on equity returns in the MSCI World Index from 31 December 2008 to 30 June 2018, finding that companies with good or improving social characteristics have tended to outperform their lower-ranked peers on average by 15bps per month. The difference is even more pronounced in terms of governance, where companies with good or improving corporate governance outperform companies with poor or worsening governance by 24bps per month.

Geir Lode, Head of Global Equities, Hermes Investment Management, said: “We have conducted this research twice before, in 2014 and 2016, and despite highlighting a link between corporate governance and returns, this is the first time we have seen a statistical link between social practices and a company’s performance. With the recent IPCC report on climate change and a slew of corporate governance scandals which have weighed heavily on share price performance, we have seen ESG investing accelerate from niche to norm. However, due to the intangible nature of social factors, it has been harder for investors to quantify and understand this element and the importance placed upon it by investors has always lagged behind.”

Full report here.

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