Historical returns and ESG ratings

Hope you are doing well. Welcome back to our brief thoughts on ESG.

This week we want to share some highlights of a new report from Kroll looking at the relationship between historical returns of publicly traded companies and their ESG ratings. This topic has been addressed a number of times in the past, with mixed results. We like that this report looks at a relatively long period of time (2013-2021) and covers data from over 13,000 companies.

Below are the study’s highlights, but if you are interested in the topic, we definitely recommend a full read since the report goes beyond the study itself to paint a pretty comprehensive picture of ESG reporting and ESG investing.

Study’s highlights (according to us)

1. The conclusion: “Our study shows that companies with better ESG ratings generally outperformed those with lower ratings over the 2013-2021 period.”
2. The methodology: “We investigated the relationship between a company’s total stock returns (dividends plus capital appreciation) and its MSCI ESG rating over the 2013−2021 period. Specifically, we built investment portfolios comprised of companies rated under each of MSCI’s seven individual ESG rating categories (AAA, AA, A, BBB, BB, B and CCC) and aggregate ratings (Leaders, Average and Laggards) to examine whether an investment strategy focused on companies with better ratings would result in a superior return performance.”
3. More on the results:

• •  “Globally, ESG Leaders earned an average annual return of 12.9%, compared to an average 8.6% annual return earned by Laggard companies.”
  • “In the United States, the country with the largest number of rated companies, the ESG Leaders earned an average annual return of 20.3%, compared to a 13.9% average annual return earned by Laggard companies.”
  • “Leaders outperformed Laggards in all industries analyzed, except for Consumer Staples and Health Care.“
  • “Real Estate companies with an ESG Leader rating earned a higher average return (9.8%) than those with a Laggard rating (6.2%). However, companies with an Average ESG rating earned essentially the same average return (6.1%) as Laggards.”

I hope you found this interesting. As usual, if there is anything we can help you with, or if there is an ESG topic you would like to know more about, please let us know.

Best,

Marimar

CEO, Miranda ESG