Quantitative Services Group (QSG), a provider of quantitative equity research, recently completed an extensive analysis confirming a positive relationship between Environmental, Social and Corporate Governance (ESG) factors and financial performance.
QSG analyzed 250+ key performance indicators applied to 900 individual data points from data provided by ASSET4, a SRI (Socially Responsible Investment) equity research firm. Aggregating ESG scores by company, QSG confirmed that the top ranked firms significantly outperformed the equal weighted Russell 1000 Index over the tested period. QSG also noted performance improvements from the integration of ESG scores with the QSG Value Momentum® stock ranking model confirming the value of combining the ESG signals with an existing stock selection process.
“Our work with ASSET4 reveals that ESG signals can be used as a source of incremental alpha and need not be be relegated to the domain of SRI criteria. I was pleasantly surprised by the scope and depth of the data,” said Tim Sargent, QSG Chief Executive Officer and President.
ESG research has recently become an increasingly popular form of research. Just this month Riskmetrics acquired KLD , one of the world’s oldest and largest environmental, social and governance (ESG) research houses. Many attribute the increased interest to the financial crisis.
“From my perspective, the financial crisis has been quite positive for ESG,” said David Creighton, chief executive of Canada-based Cordiant Capital. “But the initial concern was that people would cut corners.”
Michael Jantzi, chief executive at Sustainalytics, a sustainability research provider to the financial sector, specialized in analyzing the Environmental, Social, and Governance (ESG) performance of companies, institutions, and countries also notes: “The crisis provided opportunity and there are certainly signs that the responsible investment community is well-positioned, although it hasn’t taken the opportunity to its full advantage yet.”
Ted Yarnell, ASSET4 ‘s Vice President and General Manager Americas agrees. “We see our partnership with QSG as another indication of the growing importance of ESG information,” said Yarnell. “QSG is one of the first quantitative analysis firms to understand and incorporate ESG information into their processes, which should provide a true competitive benefit to their clients. We are excited about this partnership and look forward to continuing to demonstrate the positive relationship between ESG factors and financial performance.”
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