New Kroll Study Shows Stronger Investment Returns for Companies with High ESG Ratings, with Higher Returns on Average from Asia ESG Leaders than Lower Rated Companies

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  • Globally, ESG Leaders had annual returns of 12.9% vs. 8.6% for ESG Laggards
  • In Asia, ESG Leaders returned an average of 11.6% vs. 5.8% for ESG Laggards

Hong Kong, September 14, 2023 – Kroll, the leading independent provider of global risk and financial advisory solutions, today announced the launch of its ESG and Global Investor Returns Study, which examines the relationship between historical returns of publicly traded companies and their ESG ratings globally. Kroll analyzed data on over 13,000 companies across a variety of industries around the globe and found that companies with better ESG ratings outperformed their peers with lower ratings.

“The future of ESG and sustainability investing will depend on investor confidence in the reliability of ESG ratings and ESG disclosures and their relevance as an indicator of public company performance,” stated Carla Nunes, Managing Director and Global Leader of the Valuation Digital Services Group at Kroll. “Quantitative analysis of the relationship between ESG ratings and equity returns is a critical component for evaluating ESG-based investment decisions. Increased regulation around ESG ratings is likely to bring some uniformity to the field.”

As new global regulatory and financial reporting standards are set, ESG investing will likely remain an important driver of investment decisions with management teams, investment firms, regulators, and standard setters. A strong ESG materiality framework for identifying and assessing dynamic ESG factors is critical for effective reporting. Because the concept of materiality differs between ESG disclosure standards and proposals, there will be an increased need for complex data-gathering processes, which will require technology solutions and close attention to internal controls.

“The demand for ESG disclosure attestation and assurance services will also increase dramatically, allowing investors to place greater reliance on ESG data for their investment-decision making,” Nunes added.

Key findings from the study include:

  • Globally, ESG Leaders earned an average annual return of 12.9%, compared to an average 8.6% annual return earned by Laggard companies. This represents an approximately 50% premium in terms of relative performance by top-rated ESG companies.
  • In Asia, ESG Leaders earned an average annual return of 11.6%, which is double the 5.8% earned by Laggards.
  • However, 38% of Asian companies were rated as ESG Laggards, with only 6% being considered Leaders (as of December 2021). In contrast, North America had 17% Laggards, while Western Europe had just 6%.
  • The number of MSCI ESG-rated companies increased significantly over the period studied (more so than in other regions), with the company count in December 2021 being almost double the 2013−2021 average. This may be partly attributable to the general increase in publicly traded Asian companies over the period.
  • Better-rated companies generally outperformed lower-rated ones in Asia, as in the rest of the world. Information Technology stood out as an outperformer, with Leaders’ average annual returns rising by more than double those of Laggards (22.5% versus 10.5% in US$ terms). However, industry performance was mixed, and this trend did not extend to Energy, Consumer Staples, Health Care, and Utilities.
  • The positive relative performance of ESG Leaders vs. Laggards was generally consistent across all major geographic regions and for most industries, with some exceptions.

Study Methodology

The Kroll ESG and Global Investor Returns Study examines a universe of over 13,000 companies across a variety of geographies and industries around the globe. The study examines the relationship between a company’s total stock returns (dividends plus capital appreciation) over the 2013-2021 period as compared with ESG company ratings published by MSCI to ascertain if an investment strategy focused on companies with a better rating would result in a superior return performance. This study is unique due to its comprehensive nature. It examines the relationship between company ESG ratings and returns in four geographic regions (World, North America, Western Europe, and Asia), 12 countries/markets (Australia, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Japan, South Korea, the UK and the US) and 11 industries.

About Kroll

As the leading independent provider of risk and financial advisory solutions, Kroll leverages our unique insights, data, and technology to help clients stay ahead of complex demands. Kroll’s team of more than 6,500 professionals worldwide continues the firm’s nearly 100-year history of trusted expertise spanning risk, governance, transactions, and valuation. Our advanced solutions and intelligence provide clients with the foresight they need to create an enduring competitive advantage. At Kroll, our values define who we are and how we partner with clients and communities. Learn more at Kroll.com.

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Edmund Shing, PhD

Global Chief Investment Officer
BNP Paribas Wealth Management

Edmund has over 29 years of experience in financial markets in a wide variety of positions, ranging from proprietary trading to portfolio manager in a number of financial institutions in London and Paris.  He previously held the role of Global Head of Equity and Derivative Strategy at BNP Paribas in London from 2015 to 2020, and has been Chief Investment Officer at BNP Paribas Wealth Management since November 2020.

Edmund is responsible for piloting our investment strategy and will continues to rollout out recommendations and themes with actionable advice that brings our expertise to our clients and support to our client-facing teams.  In this time of change, his expertise in following and anticipating markets is a true value added for both our customers and those at Wealth Management who serve them.

Edmund has a PhD in Cognitive and Computing Science from the University of Birmingham in the United Kingdom, and has done advanced studies in Knowledge-Based Systems and in Experimental Psychology.  He is an EFFAS-certified financial analyst. He has also authored the book “The Idle Investor” published by Harriman House in 2015, proposing 3 simple investment strategies that take only a few minutes to execute per month.

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