Good companies do more than just make money. We all know this to be true; it goes without explanation.
Good companies also make better investments, certainly in the long-term. Businesses that think about more than just the bottom line, deliver fatter returns for those who are patient. That is the overwhelming message from the latest Edelman Investor Trust report – a survey of fund managers and chief investment officers in six key geographies globally.
Our poll has found that investors believe that businesses that place a greater focus on Environmental, Societal and Governance issues are more resilient in a crisis, offer better long-term returns – and therefore their shares deserve to trade at a premium.
Overall, more than 90% of investors believe that a “multi-stakeholder” business model generates higher returns. And they are allocating capital accordingly.
Some 86% of UK investors claim they actively seek out companies that have reduced near-term return on capital by stopping a share buyback or cutting a dividend in order to invest the proceeds in ESG initiatives.
Almost two-thirds of the UK-based investors are now screening companies based on Diversity & Inclusion statistics – and moving stocks to a watchlist if they miss the hurdle set. A staggering 85% of investors believe that companies who perform well on D&I metrics will see a benefit to their share price.
Is it possible to calculate an ESG premium on a share price? A whole field of academia has sprung up in recent years looking to test all of these hypotheses, but there has a yet to be a concrete, evidential dataset that can make that claim definitively.
The inputs are there to see, however. More and more money is being allocated to ESG funds – reaching almost £800 billion (€882 billion) of assets under management in the European sustainable fund market alone and in spite of the Covid-19 crisis, according to Morningstar. As the criteria governing the allocation of that capital gets tighter, investors are having to react.
Some 30% of investors claim they know consider ESG factors right at the initial point of investment – alongside financial, strategic and broader economic or sector metrics. This is consistent globally in our findings.
ESG metrics, therefore, are not an afterthought. They are part of the core investment considerations.