GLOBAL - Equity investments that take environmental, social or governance (ESG) criteria into account yield better returns, according to an analysis of international equities by ratings agency oekom research and the German performance measurement association for investment portfolios (DPG).
The return on investment yielded by the companies evaluated positively in terms of sustainability - oekom Prime Portfolio Large Caps - was more than 15% above that of the MSCI World Total Return index between 31 December 2004 to 31 December 2011.
At the same time, these companies presented a slightly lower risk than the conventional benchmark.
Robert Haßler, chief executive at 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.
“The superior performance was not achieved at the cost of higher risk - on the contrary, the annual risk of oekom’s Prime Portfolio Large Caps was actually slightly lower than that of the MSCI World index.”
During the seven years, oekom’s prime large caps, weighted by market capitalisation, achieved a cumulative return on investment of 30.90%, compared with 26.80% for the MSCI World.
The prime large caps thus achieved a return on investment of 4.1 percentage points, or 15.3% higher.
If equal weighting is given to the securities in the prime large-cap portfolio, their cumulative return on investment rises to 62.84%, making it more than double that of the conventional benchmark.
In terms of annual risk, the prime large caps achieved 18.92%, compared with the MSCI World’s 19.08%.
The top performers during the seven-year time period were prime large caps from Asia Pacific.
Weighted by market capitalisation, they achieved an annual rate of return of 6.39%, performing significantly better than the comparison index, which managed 4.86% per annum.
Likewise in Germany, the annual rate of return during the period stood at 5.36%, putting it above the 4.26% of the corresponding benchmark.
With 2.89% in Europe, the prime large caps achieved the same annual rate of return as the corresponding MSCI index.
As of 31 December 2011, oekom’s Prime Portfolio Large Caps comprised 300 companies from more than 25 countries.
Prime Status is awarded to companies that satisfy industry-specific sustainability management requirements defined by oekom research.
The study can found here.