Companies with high ratings for corporate social responsibility and environmental, social and governance factors have a lower cost of capital and are a lower risk to investors, according to a report by Deutsche Bank’s climate change investment research group.
DB Climate Change Advisors released “Sustainable Investing: Establishing Long-Term Value and Performance,” a review of 100 academic studies of sustainable investing, as well as 56 research papers, two literature reviews and four meta-studies.
Of the studies Deutsche Bank examined, 89 percent show that companies with a high rating for ESG factors also exhibit market-based outperformance. Some 85 percent of the studies also show these types of companies report accounting-based outperformance.
As a result of the review, Deutsche Bank says ESG analysis should be built into the investment process of every serious investor, and into the corporate strategy of companies that care about shareholder value. ESG best-in-class focused funds should be able to capture superior risk-adjusted returns if well executed, DB said.
Socially responsible investment (SRI) fund managers, who tend to use exclusionary screens, have historically struggled to capture outperformance in the broad SRI category. This has frequently led sustainable investing to be described as yielding mixed results – and this goes a long way towards explaining why the concept of sustainable investing has taken so long to gain acceptance among many investors, said Mark Fulton, DB Climate Change Advisors’ global head of climate change investment research.
DB says that by breaking down the analyses into different categories such as SRI, CSR and ESG, investors can more accurately determine where, in the broad universe of sustainable investment, value can be found.
In recent sustainable investment news, the Carbon Disclosure Project, which provides 655 institutional investors with the water, emissions and other climate-related data of some 3,000 organizations, announced it is merging with the Global Canopy Program’s Forest Footprint Disclosure Project. The merger is expected to give investors more complete and comprehensive information about companies’ sustainability.