“Our Global ESG Primer provides quantitative evidence that
incorporating ESG into one's investment approach can enhance returns and reduce risk.”
Head of U.S. Equity & Quant Strategy and Global ESG Research
BofA Global Research
“Can I invest with a conscience and make good returns?” It’s a question investors have been asking ever since the sustainable investing trend began to sweep the world’s markets in the mid-2000s. Although there’s plenty of anecdotal evidence to show that you can outperform by favoring companies with good environmental, social and governance (ESG) behavior, quantifiable proof that ESG can lead to better stock returns has been hard to track down – until now.
Quantitative equity strategists at BofA Global Research have analyzed thousands of publicly-listed companies around the world based on their ESG practices. In their latest Global ESG Primer “ESG from A to Z” they found that companies scoring highly for ESG practices did better than those in their sectors that scored poorly.
“Our Global ESG Primer provides quantitative evidence that incorporating ESG into one's investment approach can enhance returns and reduce risk,” says Savita Subramanian, Head of U.S. Equity & Quant Strategy and Global ESG Research at BofA Global Research.
Here are some of the report’s findings:
U.S. companies with high (top quintile) ESG rankings in the S&P 500 index have outperformed their counterparts with lower (bottom quintile) ESG rankings by at least 3% every year for the past five years1
Subramanian also points out in the report that in the U.S., ESG metrics are the best measure for signaling future earnings risk – superior even to financial risk factors, like the level of a company’s leverage
Europe is leading the way. “The rise of eco-political parties in power in Europe, a swell of millennials and ‘green’ investors looking to invest with impact and 10 years of persistent outperformance from higher-rated ESG stocks have driven a groundswell of awareness,” says Subramanian. About 65% of all global ESG funds are domiciled in Europe.
Europe represents almost half of the $30.7 trillion of investable assets in sustainability funds, according to the Global Sustainable Investment Alliance. Based on U.S. demographic trends, Subramanian's team believes $30.7 trillion could rise some $15-$20 trillion over the next two decades. “That’s equivalent to the size of the S&P 500 today,” says Subramanian.
READ OUR RESEARCH ON ESG
Want to learn more? Download a redacted version of the Global Primer: “ESG from A to Z.”
1 MSCI ESG Research LLC, FactSet, Refinitiv, Sustainalytics, BofA Global Research U.S. Equity & Quant Strategy
2 Global Sustainable Investment Alliance: Global Sustainable Investment Review, 2018. As of Dec. 2, 2019
3 BofA Global Research Equity & Quant Strategy team’s extrapolation from data in the 2018 U.S. Trust Wealth and Worth Survey
* During the period examined in the study
** According to the study
1For more information about any awards cited, visit http://go.bofa.com/awards