Companies with better social characteristics are earning investors on average 15 basis points (bps) more each month than those with poor or deteriorating social characteristics, research shows.
Hermes Investment Management, which carried out the analysis, said it was the first time a statistical link between social factors and returns had been made in its research, which has been carried out three times in total.
The research looks at the impact of environmental, social and governance (ESG) factors on equity returns from the MSCI World Index.
Geir Lode, head of global equities at Hermes, said social factors had been harder to quantify for investors due to their “intangible nature”.
Hermes accessed social factors including criteria such as employee turnover rates and workplace accidents, as well as policies on human rights.
The survey reaffirmed the benefit of good or improving corporate governance. Although the average monthly return had fallen from 30bps in a previous study, it was still positive at 24bps.
Well-governed companies have tended to outperform poorly governed companies since the start of 2009, but the governance factor had been “particularly ineffective” in the past 12 months when poorly governed companies tended to outperform well-governed companies.
As for the environmental element, Hermes said there was “no evidence” of underperformance by companies showing attractive environmental characteristics.
The results are published in Hermes’s ‘ESG investing: A social uprising’ report.
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