A new study suggests many investors are missing out on the benefits of ESG because they — or their advisors — don’t understand why or how to use it.
Despite growing evidence, over a third of survey respondents do not think ESG is an alpha source, and another third aren’t sure. That leaves less than a third who grasp the utility of ESG data.
What do they know that the other two thirds don’t? Citing another study, this report says “portfolios with an ESG bias outperformed a world stock index, made up of over 1,500 large-cap equities, over an eight-year period. Specific factors valued by ESG investors have also been proven to correlate with higher long-term returns.”
This is not by chance. ESG reporting was designed to give investors valuable data about companies’ operations and risks. Time, feedback, and refinement have only improved its power.
ESG is, in a word, material. If you’re investing only your own money, nobody will care if you decide to ignore ESG. But if anyone else’s money is riding on your advice, they deserve the advantage that ESG’s information on risks and opportunities can provide.
The market is quickly becoming aware of the ESG advantage, and perhaps someday all investments will consider the data. But fiduciaries who learn to harness ESG now may be putting their clients ahead of the curve.
Still on the fence? Or even just looking for a ladder? We’ve put together a few quick pieces to help investors understand this relatively new tool:
Flip through our ESG Key Issue of the Week series for simple explanations of why each issue is material: Customer Privacy and Data Security; Management of the Legal and Regulatory Environment; Food vs Fuel; Our Thirsty Tech. Stay tuned for more issues!
Have a fun wide-angle look at the Natural History of ESG
Take your first Five Steps to E-S-Genius
Browse the rest of our Insights page for answers to popular questions about ESG
And of course, you can reach out to us anytime with questions about how to apply ESG for your unique investment requirements.