Download Reasons to Include ESG Factors in Security Selection

topfive
Reasons to Include ESG Factors in Security Selection
1. Investors can have their eco-friendly cake and eat it too.
Should shareholders focus on good corporate citizens at the expense of returns? Fortunately, investors don’t
need to make this sacrifice. Several studies show that strategies using environmental, social and governance
(ESG) factors can generate performance competitive with their traditional, unconstrained counterparts.1
2. Companies with improving ESG profiles can even beat their peers.
It’s possible that investors can even utilize companies’ environmental, social and governance factors to produce
alpha. Our research indicates that companies with improving ESG profiles in the Russell 1000 index may outperform similarly situated stocks in that index.2
3. Happy employees make shareholders happy.
Companies that treat employees well can have an impressive track record. A 2009 study indicated that companies with practices deemed “ethical management” outperformed their peers over two decades. Workplace
diversity may also positively impact financial results of public companies.3
4. Helps avoid companies that focus on the short term.
Today more than ever, public companies face pressure to meet quarterly earnings expectations and drive their
stock prices higher. Investing in companies with strong ESG policies can help protect shareholders from companies tempted to boost its stock price through questionable business practices.
5. Helps find companies that focus on the long term.
Some research suggests that companies with strong ESG profiles also tend to make good decisions about allocating capital.4 This makes sense to us as ESG decisions require the same kind of sound, long-term thinking as
management of finances and capital expenditures.
For more information, please refer to Glenmede’s related whitepapers: Investing Alongside Your Values and Accelerating The Momentum Toward ESG (Environmental, Social, Governance).
1
Empirical Research Partners. May 2014. Deutsche Bank Climate Change Advisors. June 2012.
2
Nagy, Zoltán, Altaf Kassam, and Linda-Eling Lee. 2015. “Can ESG Add Alpha? An Analysis of ESG Tilt and Momentum Strategies.” MSCI ESG Research Inc.
3
Edmans, Alex. Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices. Wharton School, University of Pennsylvania.
August 12, 2009. Catalyst, “Why Diversity Matters,” Catalyst Information Center, p. 9-10. July 2013.
4
Cahan, Rochester. Perspectives on Socially Responsible Investing. Empirical Research Partners. May 19, 2014.
Glenmede’s Top 5 is intended to be an unconstrained review of matters of possible interest to Glenmede Trust Company clients and friends and is not
intended as personalized investment, estate planning, tax or legal advice. Investment and wealth advice depends on many individual facts and circumstances we cannot account for here. For legal and tax advice, consult your lawyer or accountant. Opinions or projections herein are based on information available at the time of publication and may change thereafter. Information gathered from other sources is assumed to be reliable, but accuracy is
not guaranteed. Outcomes (including performance) may differ materially from expectations herein due to various risks and uncertainties. Any reference
to risk management or risk control does not imply that risk can be eliminated. All investments have risk. Please contact your Glenmede representative to
discuss the applicability of any matter discussed herein.