Sustainable investing and environmental, social and governance (ESG) investment strategies are a hot topic on Wall Street. There’s a growing pile of evidence indicating that stocks of companies that meet the standards for ESG-factors are likely to outperform the market. Bank of America Merrill Lynch presented 10 reasons why one should care about ESG. Three interesting reasons are:
- ESG could boost your returns by a significant amount: a strategy of buying stocks that rank well on ESG metrics would have outperformed the market by up to 3 percentage points per year over the last 5 years.
- Traditional financial metrics, such as earnings quality, leverage and profitability don’t come close to ESG as a signal of future earnings volatility or bottom-line risk.
- 15 out of 17 (90%) bankruptcies in the S&P 500 between 2005 and 2015 were of companies with poor Environmental and Social scores five years prior to the bankruptcies.
The tables below lists the top ten (European) Dividend Aristocrats and their Total ESG-core plus Controversy Level. The Controversy Level is between zero (low) and five (high).
Figure 1: Dividend aristocrats by Total ESG Score
Figure 2: European Dividend aristocrats by Total ESG Score
