Investing with consideration of environmental, social and corporate governance (ESG) criteria has increased significantly in recent years. However, for a long time, the perception of investors was that ESGfocussed investing detracts from investment performance. This perception is starting to change. In this paper, we show that focussing on ESG factors can enhance returns. In particular, we show that wellgoverned companies have tended to outperform poorly governed companies by an average of over 30 basis points per month over the last five years. Capturing this consistent source of value can enhance the returns of equity strategies.
This note explains our testing methodology, a breakdown of the results and describes how we integrate ESG analysis into our investment process.