Over the past two years, equity returns from listed companies with a strong sustainability profile far exceeded those of companies in general, according to an analysis by the Danish financial institution Nykredit.
Nykredit compared sustainability and financial performance data for more than 5,000 global, publicly traded companies. The results showed a surprisingly clear correlation between the companies’ ESG ratings – an assessment of how they manage environmental, social and governance risks – and their equity returns. Over the past two years, the companies with the highest ESG ratings have also provided the best equity returns.
“This marks the first time that we have seen such a clear correlation between ESG ratings and equity returns,” says Søren Larsen, Head of Socially Responsible Investments at Nykredit. “Companies with a higher ESG rating have quite simply created more value within the past two years.”
The result is surprising, as no previous study could establish proof that it pays to invest in sustainability. On paper, long-term investments in social and environmental sustainability have long been a logical – and desirable – recipe for stable
and long-term economic growth. But in the real world, serious market errors such as inadequate valuation of natural resources and pollution have devalued the business case for sustainable investment. As a result, short-term profit optimisation remains the most prevalent business model in the market economy.
From Nice-to-have to Need-to-Have
Nykredit’s analysis, one of the most comprehensive of its kind, coincides with a wide range of analyses and indicators reflecting that the world is currently in a time of transition where environmental and social sustainability are evolving from “nice to have” to “need to have” in a commercial context. Sustainability is quite simply becoming a decisive factor for companies’ competitiveness and investors’ equity returns.
As Peter Kjærgaard, Chief Investment Officer at Nykredit, concludes: “The analysis indicates that sustainable investment today is not just something you should do for your conscience. Since 2012, environmental and social sustainability has resulted in better equity returns from companies.”
Read the entire article in Focus Denmark.