IN FOCUS6-8 min read

Why might ESG factors increase returns?

We focus on three ESG measures - R&D, carbon intensity and worker safety - to see to what extent they can add to investment returns, and why.

2021-11-15
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Authors

Ashley Lester, PhD
Head of Schroders Systematic Investments
Hettie Mccarthy
Quantitative Analyst, Schroders Systematic Investments

Many investors today seek more than impact from their ESG portfolios. They want returns too.

By now, there are literally thousands of papers asking whether ESG adds to – or detracts from – expected returns. But there is no consensus, and nor is one to be expected, because there is little agreement about which companies are “better” or “worse” from an ESG perspective.

Even more fundamentally, there is no particular reason why “good” companies should generate better returns; after all, capitalism is a system of economics, not ethics.

In this paper, we take a different approach. We ask whether particular activities of companies that are especially relevant to ESG investors can add to expected returns, and if so, why.

From the many available measures of ESG, we select three for closer examination that seem to be associated with positive returns – R&D, carbon intensity and worker safety.

Generally, expected excess returns are a reward either for taking risk or for using information more efficiently than other investors. We find that our three selected features are no different – and thereby gain further insights into what types of ESG measures are most likely to generate excess returns.

Read full reportschroders-esg-factors-increase-returns
0 pages743 KB

Authors

Ashley Lester, PhD
Head of Schroders Systematic Investments
Hettie Mccarthy
Quantitative Analyst, Schroders Systematic Investments

Topics

Equities
Sustainability
Sustainability North America
Alpha Equity
Global
ESG
In focus
Multi-Asset
Alternatives
Solutions
Social

Schroder Investment Management North America Inc. (“SIMNA”) is an SEC registered investment adviser providing asset management products and services to clients in the US and in Canada, NRD Number 12130, registered as a Portfolio Manager with the securities regulatory authorities in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan.  Schroder Fund Advisors LLC (“SFA”) is a wholly-owned subsidiary of SIMNA Inc. and is registered as a limited purpose broker-dealer with FINRA and as an Exempt Market Dealer with the securities regulatory authorities in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Quebec, and Saskatchewan.SFA markets certain investment vehicles for which other Schroders entities are investment advisers. 

Schroders Capital is the private markets investment division of Schroders plc.Schroders Capital Management (US) Inc. (‘Schroders Capital US’) is registered as an investment adviser with the US Securities and Exchange Commission (SEC).It provides asset management products and services to clients in the United States and Canada.For more information, visit www.schroderscapital.com

SIMNA, SFA and Schroders Capital are wholly owned subsidiaries of Schroders plc.