Market Commentary

Companies with poor ESG practices underperform over long term

Posted by Anton Murray Consulting on . Posted in Market Commentary


The trend is consistent across sectors except for two notable exceptions. Research by Federated Hermes on the link between ESG and company performance has found that those with poor practices have historically underperformed over the long-term. According to the firm, companies with leading or improving environmental, social and governance scores perform better than their peers with poor or worsening standards largely due to the underperformance of the laggards rather than the outperformance of the leaders.

“For investors, avoiding the ESG laggards, and those whose standards are slipping, is a crucial way to capture the ESG premium,” suggested Federated Hermes senior global equities portfolio manager Lewis Grant. The investment manager previously concluded that both social and governance factors have had a “meaningful impact” on shareholder returns but the relationship between environmental factors and performance was determined to be weak. However, in the two years following its earlier research, Federated Hermes said it had observed a shift which has seen environmental factors supporting performance on par with social and governance.

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