There’s more to ESG than that feel-good factor. The value of incorporating ESG metrics in your investment decisions has been historically difficult to test: see, data is often incomplete and not standardized, particularly for smaller or emerging market companies. So while it is worth knowing the value that ESG can bring to investing, you should examine most of these results with a critical eye. Still, though, the majority of studies show that picking stocks with high-ranking ESG metrics can help you outperform the market. ⚖️

Source: J.P. Morgan Asset Management. The chart above shows the performance of companies that have been ranked under J.P. Morgan Asset Management’s proprietary ESG scores*. You can see that those with the top 20% of ESG ratings outperformed those in the bottom set across four regions from 2012 to 2021, with the starkest difference in North America. And another recent study** also concluded that this apparent improved financial performance due to ESG becomes more marked over a longer time horizon.

* https://am.jpmorgan.com/hu/en/asset-management/institutional/insights/market-insights/market-updates/on-the-minds-of-investors/the-impact-of-ESG-factors-on-portfolio-returns/** https://www.stern.nyu.edu/sites/default/files/assets/documents/NYU-RAM_ESG-Paper_2021%20Rev_0.pdf

Source: State Street Global Advisors. What’s more, the positive impact that high-ranking ESG stocks can have on a portfolio goes beyond higher returns. Studies have shown that those stocks also tend to have lower volatility, a key measure of financial risk, meaning they could improve your portfolio’s risk-adjusted returns.

That said, other studies suggest that the ESG market is reaching maturity and its outperformance has already started slowing, with risks of unwinding. A stock with a good ESG rating tends to command a higher premium, meaning potentially lower investor returns. 🤔

🔮 Prepare your portfolio for a sustainable future Today’s heavy-hitting companies won’t be fighting fit forever.

As the world catches on to cleaner alternatives to our everyday necessities, established companies could be tossed aside. Just think of the fossil fuel sector, for one.

By filtering companies, you can identify the firms that could claim a seat at tomorrow’s top table – and exclude the ones likely to stay stuck in the past.

You can even spot stocks that support the issues you really care about, and filter out the ones that don’t, like animal testing or the weapons industry.

Create a portfolio you’re truly proud of. 🌎