It’s the eternal question with environmental, social and corporate governance: Does it just make investors feel good, or is it good for making money?
Barclays analysts have come away with what they’ve dubbed a “surprising conclusion” in a recent report assessing the US corporate bond market in light of ESG ratings.
In corporate bond portfolios, ESG investing has not translated into a loss of return, according to Barclays analysts:
We find evidence that a high ESG rating has been a source of modest incremental return in corporate bond portfolios. This is a surprising conclusion given that ESG investing is typically seen as a constraint on bond portfolio construction and so could be expected to have a cost. Also, the fact that bonds with high ESG scores tend to trade at slightly lower than-average spreads has not translated into a return penalty in the period under consideration.
While ESG as a whole has benefited investors, individual Environment, Social and Governance attributes have all helped improve performance from 2007 to 2015. Governance appears to have been the largest contributor, while the effects of Environmental and Social scores have been weaker.