ESG Can Boost Portfolio Performance Over Time

Market advisors and participants often wonder whether investing in environmental, social and governance (“ESG”) can result in returns equal to or higher than conventional strategies. While a lot of criticism has been directed at ESG recently, with some states going as far as to implement laws that bar ESG companies from investing in them, research and data supports the belief that ESG does generate strong returns for long-term investors.

For instance, Invesco ESG Nasdaq 100 Exchange Traded Fund (“QQMG”). It follows the NASDAQ-100 Index’sESG derivative. Over the last year, this exchange-traded fund (“ETF”) has performed better than non-ESG NASDAQ-100 Index tracking ETFs and the S&P 500.

Some of the Invesco ESG NASDAQ 100 ETF’s outperformance of non-ESG benchmarks can be attributed to a more than 61% allocation to tech stocks and the ETF’s considerable growth stock tilt. However, one can’t fail to note that if the ETF’s components didn’t meet certain ESG standards, the stocks wouldn’t be eligible for admission into the fund. What this means is that the ESG overlay serves as an enhancer of returns.

Data has also shown that professional asset allocators are screening ESG more as part of their due diligence process. This may be useful information for retail investors and advisors looking into products such as QQMG.

A statement from J.P. Morgan Private Bank also highlights that investors are considering ESG metrics in their investment decisions more, with nine out of ten asset managers maintaining the opinion that integrating analysis of ESG into their investment strategy will enhance long-term returns. Additionally, a good number of institutional investors report that their ESG products perform much better than their conventional counterparts. J.P. Morgan also notes that companies with strong ESG scores perform better than rivals that haven’t incorporated these standards.

While the knowledge that outperforming rivals is possible is welcome news, companies knowing how to accrue these scores is valuable on its own accord.

In its statement, J.P. Morgan observed that ESG leaders needed to think ahead when it came to capital allocations as they worked to manage regulatory, market, physical and reputational risks and create sustainable businesses as they focus on the long-term. The multinational finance company also noted that ESG leaders generate better-than-average returns and are also more profitable, providing opportunities for more funds to be returned to shareholders as time goes by. Additionally, companies with higher ESG ratings perform significantly better than those with lower ratings.

Away from investor portfolios, individual companies such as Coyuchi Inc. are also reaping the benefits that come from putting ESG front and center of their entire operations. Other companies would also be well-advised to consider making similar integrations if they are to see lasting success.

NOTE TO INVESTORS: The latest news and updates relating to Coyuchi Inc. are available in the company’s newsroom at https://ibn.fm/COYU

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