It’s obvious, when you think about it, that well-governed companies should command a premium to the rest of the market. Companies that respect the environment, are managed for the long-term, use their human resources wisely, are likely to make better investments. Yet, the message that incorporating ESG (environmental, social and governance) criteria is an easy way to deliver strong investment performance, rather than just to manage risk, has not been widely understood.
The evidence is increasingly compelling. Analysis by the Boston Consulting Group released last week showed that those companies who score highly on ESG criteria are more profitable and command a higher market valuation than their peers. The analysis, which looked at more than 300 of the world’s largest companies showed earnings before interest, tax, depreciation and amortisation were 3.4% higher for these groups, and in some industries – such as the pharmaceutical industry – the difference was particularly marked.