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Alternative Market Briefing

Socially responsible investments provide higher yield

Monday, September 08, 2014

Komfie Manalo, Opalesque Asia:

A study by New Amsterdam Partners showed that asset managers with high ESG (environmental, social and governance) ratings provide higher gains with their portfolios compared to managers with low ESG ratings.

In a study entitled The Benefits of Socially Responsible Investing: An Active Manager's Perspective affirmed the principles of ESG. One test compared 100 randomly selected and equally weighted 40-stock portfolios selected from a universe of U.S. stocks with an identically created set except that the lowest 10% of ESG companies were removed. The mean returns were higher for the second group of portfolios in five of the six years measured.

ESG stands for the three pillars of sustainable investing: environmental, social and governance. The core principle of sustainability is that if a company's environmental, social and governance practices do not rise to global norms, then corporate performance will in the long run be unsustainable.

The study also found that stocks with higher ESG ratings tend to be associated in the aggregate with superior returns and lower price volatility.

Indrani De, co-author of the study, commented, "Clearly, asset managers can actively use ESG information and exclude......................

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