ESG and Investor Returns: The Connection

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by KnowESG
KnowESG_ESG and Investor Returns: The Connection
Image courtesy of Kroll

Kroll's ESG and Global Investor Returns Study, known as the "ESG Returns Study," delves into the correlation between a company's overall stock returns (encompassing dividends and capital appreciation) and its environmental, social, and governance (ESG) ratings assigned by MSCI from 2013 to 2021.

In this in-depth analysis, they have constructed investment portfolios based on companies rated under each of MSCI's seven distinct ESG rating categories (ranging from AAA, the highest, to CCC, the lowest), as well as aggregate ratings (categorised as Leaders, Average, and Laggards).

The aim was to explore whether an investment strategy centred on companies with favourable ratings could yield superior returns. Their investigation reveals that companies boasting stronger ESG ratings generally exhibited better performance compared to those with lower ratings throughout 2013-2021.

What sets the ESG Returns Study apart is its distinctive design, representing the most extensive quantitative exploration of the relationship between companies' ESG ratings and returns. This examination encompasses four global regions, namely the World, North America, Western Europe, and Asia Pacific, spanning across 12 countries and territories, including Australia, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Japan, South Korea, the UK, and the U.S.

Moreover, within some of these geographical regions, they have conducted a deeper analysis, dissecting the results across 11 distinct industries as defined by the GICS® structure.

These industries encompass energy, materials, industrials, consumer discretionary, consumer staples, health care, financials, information technology, communications services, utilities, and real estate. For a comprehensive understanding of their methodology and key insights from the study, you can access the full report here.

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To view and compare company ESG Ratings and Sustainability Reports, visit our Company ESG Profiles page.

Source: Kroll


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