Positive ESG performance improves returns globally, research shows

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Positive ESG performance improves returns globally, research shows
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Strong governance drove outperformance in every region

Stock funds outperformed across global markets over the last five years if they were weighted toward companies with positive environmental, social and governance scores, research from sustainability data firm ESG Book shared exclusively with Reuters this month showed.

With trillions of dollars flowing into funds focused on ESG performance, whether and how much it impacts returns is increasingly a focus for investors. Backed by groups including HSBC, Deutsche Bank and Swiss Re, ESG Book launched in December 2021 to make corporate sustainability data more transparent and comparable.

At the same time, ESG Book uncovered wide performance disparities when model portfolios were built around individual environmental, social and governance components. By contrast, a bias toward companies with high social scores led to underperformance in the North American and global portfolios, but outperformance in the Asia-Pacific region and Europe.

Companies that ESG Book scored highly on environmental metrics contributed to outperformance in all but the global portfolio, where performance was dragged lower by its exposure to emerging markets, lagging its benchmark by 0.82% a year, on average.

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