Study suggests alpha potential of sustainability research
GLOBAL - Investing in sustainability leaders ultimately contributes to superior long-term investment results with improved risk/return profiles, according to the latest research by Swiss-based SAM.
The sustainable investment manager's white paper suggested sustainability leaders delivered an average outperformance of 1.48% with a positive information ratio of 0.47 between the research periods of 2001 to 2008, highlighting the alpha potential of proprietary sustainability research.
"Alpha is created by analysing under-researched sustainability factors, which impact the companies' long-term value," explained Stephanie Feigt, chief investment officer at SAM.
According to the asset manager, value is created both from picking sustainability leaders and avoiding sustainability laggards, as shown by the positive information ratio for long/short investment, a strategy which consists of maintaining the sustainability leaders on a long position and short-selling sustainability laggards.
In the study, all three regions - the US, Europe, and Japan - contributed to the outperformance and the information ratios of the strategy proved positive both during bull and bear markets.
And this is the latest in a line of research suggesting sustainability can bring outperformance.
A study conducted by the EDHEC Risk and Asset Management Research Centre on the French market earlier showed that none of the 62 funds in its sample selected by socially responsible investment (SRI) criteria had managed to produce both positive and significant alpha over a six-year period. That said, it found thematic funds achieved much higher performance values than traditional SRI funds, and attributed performance to style biases rather than a selection of SRI securities alone.
Elsewhere, a study by Altedia Investment Consulting found that thematic funds using environmental, social, governance (ESG) criteria posted a better relative performance of 2.8% than those without, particularly when markets are down.
The latest white paper was co-authored by Robeco's Quantitative Strategies Department and is based on SAM's annual assessment data. The sample includes all companies that directly participated in SAM's annual assessment between 2001 and 2008.
Emerging markets and Canada were excluded from the sample for purposes of reconciliation with Robeco's databases. And the final population sample includes approximately 400 companies for each year.
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