How do CSR and sustainable development policies affect the financial performance of companies? A new study shows that investments that take ESG and CSR criteria into account yield more money.
We’ve already seen in previous articles from e-CSR.net and in some studies that CSR increases company performance. We’ve also recently written on how companies wanting to lead in 2019 need to sell sustainable products or services and that consumers want brands to be more authentical and transparent. Still, for some people, the financial profitability of companies betting on CSR strategies is still a pending issue.
Well, a study conducted by the investment experts of Amundi has shown that over the last decade, the companies most committed to ESG and CSR outperformed on the stock market. In simple words, their shares’ value has increased. Let’s find out.
The Financial Performance Of Companies On The Stock Market Related To Their ESG And CSR Performance
Amundi experts analyzed the stock market performance of 1,700 companies across the MSCI indices (MSCI North America, MSCI EMU, MSCI Europe-ex EMU, MSCI Japan, and MSCI World). They’ve afterward compared these scores with ESG performance.
The results are quite clear: in both Europe and the United States, investing in portfolios with good ESG scores pays more. This means that the more companies have good scores in environmental, social, governance or CSR criteria, the more their actions tend to generate. Simultaneously, the opposite is also true for companies with low scores: they underperform. “Among the three ESG pillars, it is the Environment factor in North America and the Governance factor in the Eurozone that have achieved the best results” the report says.
Growing Interest In ESG Approaches In the World Of Investors
According to the firm, this trend is due to a growing interest of investors for actors with a virtuous approach to ESG criteria. In the end, the study reaches the conclusion others had already reported: more and more investors are interested in CSR.
Looking closer, this interest is pretty logical. We know today that investing in CSR and in resilience programs on environmental, social or governance topics allows companies to better control risks. These risks can start in the supply chain, where the production of raw materials might be affected by climate change events and changes. And even suppliers with bad social or environmental practices can ruin a company’s reputation. From another perspective, there are also challenges from the economic markets where, for instance, the tendency is for renewables to get increasingly more competitive. Also, from a human resources perspective, employees who perceive their company values CSR tend to be more engaged and be more productive, which is good for retention but also for employer branding. These companies are, therefore, better equipped to deal with an economic world that is changing fast and to lead in their markets.
Logically, CSR also attracts some investors concerned about the long-term stability of their investments, and by snowball effect, it makes their actions attractive. As a result, “the use of a best-in-class approach (or the purchase of the top 20% of the best-rated shares) combined with the sale of the 20% of the lowest rated shares on the ESG criteria would have generated an annualized return of 3.3% in North America and 6.6% in the euro area over the period 2014-2017. ” Here’s another reason for companies to develop their investments in CSR and ESG criteria.
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