Regulation  

Long-term benefits of investing in firms with good CSR

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How to benefit from CSR

Long-term benefits of investing in firms with good CSR

Historically, investing in tune with one's morals or personal convictions was seen as being at odds with financial gain. 

However, over the past 10 to 15 years, investors putting their money to work along ethical, moral and environmental lines have seen a strong performance, not least because they will have escaped some serious events. 

For example, those taking a strong line against oil companies will have been protected against the share price fallout from the Deepwater Horizon disaster of 2010, which led to a £47bn compensation process for BP.

From a March 2010 high of near 620 pence per share, the 20 April disaster saw the price fall to lows of approximately 319 by 1 June, according to data from the FT.

Financial benefits

Sandra Crowl, member of the investment committee at Carmingac, says there are "clear financial benefits" to investing along CSR principles.

She explains: "For example, a company that avoids environmental agency fines through best practices of soil, water and air treatment will perform better over the long term.

"Furthermore, banks are being pressured by government lobby groups, particularly in Europe, not to finance high polluting industries given the Climate Control 2030 objective.

"It is clear the laggards in managing climate control risks will be left behind. Looking beyond environmental issues, companies that value and invest in the staff will see the benefits of greater loyalty and lower staff turnover, leading to higher productivity and output."

So when it comes to investing along corporate social responsibility (CSR) lines, the argument among proponents of CSR is that a client with high exposure to companies with good CSR track records will be less likely to suffer a series of shocks and setbacks in their portfolio due to some scandal breaking or having to shell out billions in redress.

John Ditchfield, co-founder of Castlefield Advisory Partners, comments: "The argument here is that well-run businesses will tend to recognise the importance of mitigating reputational risks through acting as a good corporate citizen."

Rose Beale, thematic analyst in the responsible investment team at Columbia Threadneedle Investments, lists the long-term benefits of investing in companies with strategic CSR and strong ESG performance as: 

  • Greater likelihood of financial outperformance.
  • Reduced risk and volatility.
  • Reduced environmental and social negative impacts.

Ms Beale backs this up by stating: "There is a wide body of research which has recently been reviewed in a microstudy undertaken by the University of Hamburg.

"This study, the largest of its kind to date, examined ESG and corporate financial performance across more than 2,000 academic studies published since 1970 and concluded that there is a positive correlation between ESG risk management and financial performance."

Analysis

There is an old argument being that investors who want to be 'ethical' must be prepared to give up some of their performance. This argument seems to be pervasive, despite myriad studies showing this to be not the case.