The so-called sustainable economy is profitable. Even the surge in oil prices fueled by the war in Ukraine, which propelled stock indices housing an oil and gas component, could not beat the Global 100 of companies qualified as “eco-responsible”, rejoices Corporate Knights.
The trade magazine’s index is based on a comprehensive assessment of some 6,720 publicly traded companies around the world with revenues of more than US$1 billion. At the top of the 2023 edition of the Global 100 sits the American Schnitzer Steel, which specializes in metal recycling, 100% of whose turnover and investments fall into the category of “sustainable” income and investment.
In the 2023 edition published on Wednesday, we observe the presence of a dozen Canadian companies in this world ranking. Alberta engineering firm Stantec sits at the top of this list, occupying the seventh position in the index. Cascades follow at 20e rank, then three telecommunications companies, namely Telus (37e), ECB (42e) and Cogeco (45e). Gildan (60e), Sun Life Financial (77e), Teak (78e) and the Bank of Montreal (88e) also manage to make it onto the top 100 list, which ends with Canadian Tire at 90e rank, and IGM Financial, in 92e position.
In short, Canadian companies account for 11% of the rankings, only surpassed by the weight of 20% of American companies.
The media, research and financial information company has been offering its index since 2005 and has set itself the task of monitoring companies in their energy transition. In terms of performance, Corporate Knights is pleased to see the MSCI ACWI barometer index (for All Country World Index) and other benchmarks using environmental, social and governance (ESG) criteria outperform. By comparing the behavior of the companies making up each of the indices, we see that those in the Global 100 invest seven times more capital directly in sustainable investment, i.e. 47% of all their investments compared to 7% on average for companies in the MSCI ACWI. And ten times more eco-responsible income, which accounts for 50% of their total income, compared to 5% for the others.
That said, there is one caveat to this comparison, as the MSCI ACWI compiles the stock price trends of around 3,000 companies from 23 developed countries and 26 emerging markets.
In terms of stock market performance, Corporate Knights adds that even in 2022, with the Russian invasion of Ukraine pushing up oil and gas prices, the Global 100, which contains only one oil company — Neste, a Finnish giant specialized in renewable fuel —, did better than the index developed by Morgan Stanley, of which 6% of the composition is claimed by the “oil and gas” segment.
In turn, the magazine notes that the sharp rise in fossil fuel prices has accelerated the shift in investment towards renewable energies. In addition, a bias is ingrained in favor of responsible or positive impact investment, which is also receiving ever more attention from institutional investors. ESG criteria are becoming more and more popular among specialized managers and funds working to reduce the carbon footprint of their portfolios.
Lower risk
Cumulatively, $1 invested in February 2005 in the Global 100 portfolio generated a return nearly 1.2 times higher than an investment in the MSCI ACWI, i.e. a total return of 270.7% compared to 222.1% , according to data from the magazine. For the Dow Jones Sustainability World Index, this performance amounts to 200%. Compared to certain benchmark ESG indices, the performance gap favoring the Global 100 is multiplied between 2.2 and 2.7 depending on the time period used.
Beyond the differences between the different barometers used, remember that it is now recognized and demonstrated many times that there is a neutral or positive correlation between ESG factors and performance. And a strongly negative correlation between the performance of companies according to these ESG criteria and the volatility of their stock market securities, responsible investment being associated with a lower risk.
Among other things, a study published by MSCI using data on more than 1,600 stocks between 2007 and 2017 “found that companies that adopt good ESG practices tend to show higher profitability and report a higher dividend yield. , while presenting lower residual risks, in addition to lower systemic volatility and a higher valuation”, it has already been written..