For more than a decade the most sustainable companies have outperformed the MSCI World, our data shows. Consequently, investors can expect to gain a ‘double dividend’: supporting sustainable business while earning returns equivalent to or higher than the broader market.
We have long argued that companies which act in a socially and environmentally responsible way, for example by aspiring to be energy- and resource-efficient, by treating their employees and suppliers fairly and by adhering to principles of good governance, must also be economically more successful.
Our latest research proves that this is not just a theory: investors who incorporate robust sustainability ratings into their capital allocation decisions have clear risk and return advantages compared to those who do not.
Between 1 January 2005 and 31 December 2016, the oekom Prime Portfolio Large Caps (PPLC) index, weighted by market capitalisation, achieved a cumulative return on investment (ROI) of 168.74%. The PPLC consists of large companies that have been awarded the oekom ‘Prime’ status, meaning they satisfy our industry-specific sustainability management requirements.
Cumulative ROI for the MSCI World Total Return Index over the period was lower, at 163.49%. Our PPLC’s annual return of 8.59% was higher than the benchmark’s 8.41%.
Outperformance improves with equal weighting
If the oekom PPLC securities were weighted equally, that annual return rises to 10.94%. The superior performance of the oekom PPLC, weighted by market capitalisation, also carries a level of risk comparable to that of the benchmark. At 13%, the annual risk (volatility) of the oekom PPLC over the period from 1 January 2005 to 31 December 2016 was only marginally higher than that of the conventional index, which stood at 12.70%. When the oekom PPLC is weighted equally, this figure stands at 15.63%.
The ‘double dividend’ is real
This analysis shows that taking sustainability criteria into account does not necessarily entail lower returns or higher risk. Investors can even obtain a double dividend, generating returns that are at least in line with the market — and in some cases, as this one shows, even higher — while at the same time achieving social, environmental and/or ethical goals.
Jaspreet Duhra is senior manager Client Relations and head of oekom research’s London office
Julia Haake is director of International Business Development and head of Paris office