Yahoo Finance Choose ethical investments to make more money, says Deutsche Bank
Ethical investors make more money than those who look purely at financial measures, according to a major new study.
Environmental, social and governance (ESG) issues have typically been deemed to be fashionable but bad for business. This is because “ethical” investors have to limit the number of companies which they can back, losing some opportunities for profit.
But a Deutsche Bank study of more than a decade’s worth of data could turn that situation on its head, showing companies that can pass an ESG test are typically better bets than those which fail.
“Based on data spanning from 1991 to 2004, a period that includes both market booms and recessions, the findings showed that model portfolios of stocks with a high ESG grade (known as a best-in-class portfolio) did not suffer from any loss of performance compared with their peers,” said the report from Markus Müller, Enrico Börger and Michele Bovenzi at the German bank. By contrast, there is “a performance penalty for portfolios of low-rated stocks”.
Analysts believe ethical investors pay more attention to the companies in which they invest.
In addition, firms which meet the criteria may be working harder to make money in the long term. This can mean they treat their workforce better, which creates greater staff loyalty, or that they focus on energy efficiency, which saves money.
It can also be used as a proxy for other good practice – bosses who keep energy bills down are unlikely to waste those savings on excessive spending in other departments.
