Analysis published today by Royal London Asset Management found that, based on data from the past five years, investing sustainably can outperform the market.
We created an index from the FTSE 100, based on the 54 listed companies that have passed RLAM’s sustainable investment criteria. These companies returned 10.2% per annum over the past five years (a total return of 62.1%), compared to 9.5% per annum from the FTSE 100 (a total return of 57.6%). The sustainable index outperformed the regular FTSE in 36 of the 60 months.
As market weighted indices tend to be concentrated in a small number of the largest companies, we also looked at the average performance of companies in our sustainable index, which showed an even greater divergence. We did this by looking at potential returns based on investing £100 equally in all companies in each of the indices. The average return for sustainable companies in the FTSE 100 was 14.7% per annum over the past five years, compared to 10.3% for FTSE 100 companies.
The companies which passed these sustainable criteria came from a broad spread of the index. While pharmaceutical giant AstraZeneca and environmental leader Unilever were obvious choices, some less obvious choices also made the cut. While a chemical company like Croda might not seem a classic example of a sustainable investment, its focus on sourcing raw materials from sustainable sources, and the wider environmental benefits its products provide stood it in good stead.
Another, perhaps surprising example of a sustainable company was Diageo. Although it is ultimately a manufacturer of alcoholic drinks, it has made remarkable efforts to build a socially beneficial business model, thanks to initiatives on water efficiency and its work with local communities. In addition, it boasts one of the most diverse leadership and management teams in the FTSE 100.
Commenting on the research, Mike Fox, Head of Sustainable Investments at Royal London Asset Management, said:
"The sustainable investing team at RLAM has long believed that companies with products and services with a social benefit and companies which show leadership in the management of ESG issues, can deliver better financial returns.
“I hope that this analysis will reassure those who still wonder whether applying considerations that they make in other fields of their lives - e.g. by recycling goods and waste or giving time and money to charities - to savings and investments, does not have to mean they will sacrifice their returns and that in some cases, it can do quite the opposite."
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About Royal London Asset Management (RLAM):
Established in 1988, Royal London Asset Management (RLAM) is one of the UK's leading fund management companies, providing investment management solutions to both wholesale and institutional clients such as not-for-profit organisations, local authorities and the insurance sector.
RLAM manages £117 billion of assets and employs 89 investment professionals. It invests in all major asset classes including UK and overseas equities, government bonds, investment grade and high yield corporate bonds, property and cash.
For professional clients only, not suitable for retail investors.
Issued September 2018 by Royal London Asset Management Limited, registered in England and Wales number 2244297; authorised and regulated by the Financial Conduct Authority. Registered Office: 55 Gracechurch Street, London, EC3V 0RL.