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Companies with poor ESG records pay a performance penalty

Another way of looking at the performance equation is from a risk management perspective. To the extent that companies who don’t exhibit good ESG behaviours are more at risk of falling consumer demand, reputational damage, or even financial penalties, is there a corresponding performance penalty paid by these companies?

One study estimated the performance drag for companies who strongly violate ESG norms to be a market underperformance of around 3.5% per annum29.

In Australia, 10 years performance data released by the RIAA30 shows responsible investment funds matched or outperformed ‘mainstream’ funds across most time frames and asset classes.

FIGURE 4: PERFORMANCE COMPARISON RESPONSIBLE V MAINSTREAM INVESTMENT FUNDS

Note: Average performance of responsible investment ends was determined using the asset-weighted returns (net of fees) reported by survey respondents over one, three, five and ten-year time horizons and compared to the mainstream fund performance from morningstar DirectTM.

  • Data provided by survey respondents
  • Data provided by Morningstar direct

Source: RIAA

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References

29

Researchers find that ESG investing may benefit consultants more than investors, Simon Moore, forbes.com, April 2021.

30

Responsible Investment Benchmark Report Australia 2021, Responsible Investment Association of Australasia

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