Thursday, March 14, 2013

Return on Environmentally and Socially Responsible Investments

There is a growing body of evidence to support the contention that companies which bring sustainability into the heart of their business strategy, outperform their counterparts over the long-term, both in terms of stock market and accounting performance.

When it comes to investments, there is little evidence to suggest that green companies are at a disadvantage. Ziegler et al. 2011, found no significant difference in the stock performance of companies with more complete disclosures and/or better carbon management policies, though there was some tentative evidence that the benefits increased over time.

In August of 2011 Ethical Markets Media (USA and Brazil), globally private sector green investments totaled more than $2.4 trillion.

According to the Rockefeller Foundation, sustainable investing is playing an important role in bringing about a more resilient economy.

Melvin & Company’s Clean Energy Stock Index, made up of 62 publicly-traded clean energy companies, reported an average annual gain of 31.9 percent from 2002 through 2007, exceeding the S&P 500 by an average of 26.5 percentage points per year. It also exceeded the Russell 2000, an index of smaller growth stocks, by an average of 22.2 percentage points per year.

According to the Social Investment Organization (SIO), which promotes socially responsible investment in Canada, ethical funds had posted very competitive returns in the range of 16.1 to 34.4 per cent in 2007, leading up to the recession. According to the SIO, as of June 2008, there was more than $609 billion invested in socially responsible assets in Canada alone.

After the recession, green stock prices soared. As an average across five carefully selected cleantech portfolios, The Green Market saw returns approximating 80 percent in 2009. Although responsible investments suffered from the same volatility that impacted the rest of the market, 2010 through 2012 were also good years.

A 2012 study titled “Going Green: Market Reaction to CSR Newswire Releases,” was conducted by University of California researchers. It compared 172 press releases about emissions data by 84 American companies from 2000 to 2010. The study found that companies that voluntarily reported data about their GHG emissions saw stock prices increase in value $10 billion dollars over a 10-year period. Companies reporting their GHG emissions saw an increase of a half a percent in the two days following the announcement while companies that did not voluntarily release emissions information saw no statistical change in their stock values over that period. Smaller companies saw an even larger increase in stock value, 2.3 percent, compared to larger companies and the overall mean.

A 2011 study of companies in Standard and Poor’s 500 Index suggested that companies with high levels of GHG emissions tends to decrease a firm’s value.

In 2013 and beyond the growth of environmental and socially responsible investments will keep growing as we see more government action designed to mitigate climate change and greater shareholder demands.

Responsible investments are profitable investments. Many companies in the green sector are now outperforming the averages of the major indexes. Going forward we can expect to see significant gains in environmental and socially responsible investments.

Responsible investment is not just the right thing to do it is essential for investors seeking to maximize their rate of return.

© 2013, Richard Matthews. All rights reserved.

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