ESG – Rested and ready

Following the popularity of our ESG report from last year, "Cracking the ESG code", we've updated our findings on ESG from a performance perspective

Top ESG companies have continued to deliver solid operational performance in the past two years. In fact, AAA-rated companies have never had better ROCE or lower share price volatility versus the market than they do now. Despite this, the best ESG companies have not been properly rewarded by the market.

Since 2012, top ESG companies have outperformed the lowest-rated ESG companies by as much as 5% per year, but the trends reversed in 2016 and 2017 when ESG-based investment strategies underperformed. We argue that the recent underperformance offers investors a buying opportunity and we remain convinced that strong ESG performances will be rewarded by better odds for strong share prices and operational performances. With an ever-increasing interest in sustainability, especially from millennials, good ESG companies are set to benefit from tailwinds in the years to come.

Our 5 key take aways:

  1. Top ESG companies have continued to deliver operational performance

  2. The better the ESG rating, the lower the share price volatility

  3. Strong operations are supported by lasting fundamental trends

  4. Willingness to pay for sustainable products is rapidly increasing

  5. ESG protects above-market returns in high-quality companies

Download our equity quant report, “ESG – Rested and ready”, created by our Research Insights team at Nordea Research.

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