Companies with higher ESG ratings have been linked to outperformance during 2020, according to new research from Fidelity International.
This is the latest piece of research that indicates that during the global coronavirus pandemic there has been a positive correlation between a sustainability and market performance.
The study found that in the first nine months of 2020, stocks with higher ESG ratings outperformed those with weaker ESG ratings, in every month from January to September, with April proving to be the only exception.
This timeframe cover both the market crash in March and subsequent recovery from April onwards.
Over the nine months stocks with an ESG rating of ‘A’ outperformed the MSCI AC World Index, and Fidelity found a clear linear relationship demonstrated across the ESG rating groups — with each one beating its lower rated group from A down to E.
Fidelity International global head of stewardship and sustainable investing Jenn-Hui Tan says: “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.”
Fidelity International 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 forward-looking ratings are derived from direct engagement with companies, aggregating approximately 15,000 individual company meetings per year.