The ESG investing wave that is sweeping through Europe has started to affect supply and demand, with a subsequent effect on stock prices since 2014, according to research from Amundi.
An Amundi research team studied the performance of 1,700 companies from different regions in the period from January 2010 to December 2017.
It said it focused on more recent years to benefit from higher confidence in the ESG data used. Before the 2008 financial crisis, ESG investing had been “more of an anecdotal and explanatory investment idea”.
The asset manager found that the impact of screening companies on the basis of environmental, social and corporate governance (ESG) criteria had little impact on portfolio risk during the study period, but was crucial in terms of portfolio returns.
Amundi claimed 2014 had marked a turning point for how the stock market integrated “extra-financial” metrics. In the first half of that period, ESG investing tended to penalise both passive and active investors, but from 2014 to 2017 ESG investing was a source of outperformance in Europe and North America.
In the euro-zone, for example, buying the 20% best-ranked stocks on an ESG basis and selling the 20% worst-ranked would have generated an annualised excess return of 6.6% during that period. That was in contrast to losses of 1.2% between 2010 and 2013.