Green firms reap rewards

24 September 2012

NEW YORK: Companies that have made the greatest strides in tackling sustainability issues are yielding above-average results in areas such as margin levels and shareholder returns, a study has revealed.

Osmosis Investment Management compared the performance of the top 10% of "resource efficient" firms in nine sectors worldwide with the MSCI Index of 6,000 major corporations from across the globe.

The first group of companies – argued to be pursuing the Model of Resource Efficiency (MoRE) – secured net margins of 12.7% from January 2005 to September 2012, a figure hitting 6.3% for the MSCI World index.

Similarly, the sustainability leaders assessed generated a return on equity of 16.4% during this time-frame, more than doubling the 5.5% logged by the wider test group. These totals stood at 6.2% and 3.2% respectively when analysing their return on assets.

Gerrit Heyns, a partner at Osmosis Investment Management, dismissed concerns that eco-friendly activity has a negative impact. "Nothing could be further from the truth," he said.

"It's a common misperception that responsible or sustainable investments are all in the hug yourself, warm feeling, good intention category, the inevitable consequence of which is diminished investment return."

"An investment strategy based on resource efficiency not only produces returns in excess of global benchmarks, it also identifies management teams that are forward thinking, aware of the economic imperatives brought about by resource constraint."

In further evidence of this, the annual returns to investors provided by the MoRE panel of organisations have reached 9% for the year to date, compared with 8.2% for the MSCI World sample.

Such a correlation was also found to apply each year from 2005 to 2011, with the level of "outperformance" averaging out at 5.5% annually during this period.

At present, the leading players in the area do include "less well-known global firms" like Lundin Petroleum, the energy group, and Shire, the pharma specialist, but most are "household names", Heyns suggested.

"The data on sustainability shows that companies like Boeing, BMW, UPS, and L'Oréal are highly resource efficient in their respective industries," he said.

Data sourced from Bloomberg; additional content by Warc staff