MSCI published this study on June 22nd that compares event risks and erosion risks as they relate to ESG issues. It is a comprehensive look at which Environmental, Social and Governance issues have had the greatest impact on companies’ financial performance. They analyzed a detailed list of over 30 risks. The findings are fascinating, but the most significant statement that jumped out at me was this one:
The bottom-scoring companies on business ethics were approximately four times more likely than top-scoring ethical companies to experience a severe stock-price loss
The findings reminded me of this WSJ article, highlighting how ESG companies are holding their value as we go through the current crisis. This reinforces the message that ethical companies perform better, not only during a bull market, but also when things take a turn for the worse. Strong governance, coupled with social responsibility and accountability, are timelessly valuable.
As a refresher, here are some of the key points from this report:
- In the first four months of 2020, ESG funds attracted almost double the amount of investment than during the same time last year
- Since the start of 2015, the total number of ESG funds has nearly tripled
- A WSJ analysis found that nearly 150 of about 200 ESG funds outpaced average returns
Almost two months after the WSJ article was published, I revisited some of the points to see if they continue to hold up.
They highlighted Kroeger, Microsoft and Thermo Fischer as representatives of highly rated ESG organizations, as assessed by MSCI ESG Research. They then compared the stock performance of Kroeger to Walmart and Costco, which have lower ratings.
Revisiting that comparison today for the full first six months of this year, we see Kroeger’s shares rose 18.1% as compared to Walmart’s, which rose 0.7% and Costco’s, which rose 4.0%. And the other highly rated organizations they mentioned have also outperformed.
All of this continues to reinforce the clear need for strong ethics and compliance programs, founded on pervasive company values—not only because it’s right, but because ethical companies simply perform better.
In this era of empowered employees and consumers, where movements are fueled by social media, companies with a higher cause and a highly aligned workforce with a shared sense of mission, vision and values will attract the best talent, retain the best customers, and outperform their competitors.