Fidelity International Study Links ESG Ratings and Investment Performance
A new study published by investment management firm Fidelity International has a strong positive correlation between companies’ ESG ratings and their relative market performance in the first 3 quarters of 2020. According to the study, high ESG-ranked companies outperformed lower-ranked peers in 8 of the first nine months of the year.
Fidelity International stated that it carried out the performance comparison across 2,659 companies covered by its equity analysts, and 1,450 companies in fixed income, using the company’s proprietary ESG rating system. The research timeframe covers both the market crash in March and the recovery April-onwards.
According to the study, over the period, stocks with an ESG rating of ‘A’ outperformed the MSCI AC World Index. Additionally, the study identified a clear linear relationship across the ESG ratings groups, with each one beating its lower rated group from A down to E. Results in fixed income were similar to those in equities, with bonds of A-rated companies outperforming B’s, which in turn outperformed lower ESG-ranked securities.
Jenn-Hui Tan, Global Head of Stewardship and Sustainable Investing at Fidelity International, said:
“We’re pleased to observe the relationship between high ESG ratings and returns over the course of a market collapse and recovery. This supports our view that companies with good characteristics have more prudent management and will demonstrate greater resilience in a crisis.
“The market volatility of 2020 echoes that of 2008, despite the difference in circumstances. It would be natural to shorten investing horizons in a time of uncertainty and put longer-term concerns about environmental sustainability, stakeholder welfare and corporate governance on the back burner.
“But our research suggests that the market does, in fact, discriminate between companies based on their attention to sustainability matters, both in crashes and recoveries, demonstrating why sustainability should be at the heart of active portfolio management.”