Economy

Investments in resource-efficient firms shown to outperform competition

Published

12 years ago

September 20, 2012

Blue & Green Tomorrow

A comparison of indexes has shown that sustainable companies financially outshine those that don’t deem resource efficiency as integral to their business strategies.

Writing in the Harvard Business Review, Gerrit Heyns, a partner at Osmosis Investment Management, said that firms that use less energy and water and produce less waste “tend to produce higher investment returns” for investors.

In the piece, Heyns compared Osmosis’ MoRE (Model of Resource Efficiency) World Index with the MSCI World Index. And in each of the last eight years, the MoRE World Index has outperformed its mainstream counterpart.

“What these findings suggest is that 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”, he wrote.

“Just the kinds of companies a responsible investment manager would put clients’ money into.”

He added, “Resource efficiency, therefore, is not just some nice-to-have quality. It is a leading indicator of economic performance and one that every investment manager should be tracking.

“It’s about time that the financial community woke up to this fact and started to take advantage of the data.”

The MoRE World Index represents the top 10% most resource efficient companies from each Industry Classification Benchmark (ICB) sector. Its best performance over the seven-year period between 2005 and 2012 came in 2007, when it beat the MSCI World Index by 10.88%.

Its most recent outperformance in 2012 saw it reap 0.86% better returns.

The research conducted by Osmosis chimes well with a July study by German rating agency Oekom, which also used the MSCI World Index as a mainstream benchmark, but this time compared it to companies in the Prime Portfolio Large Caps (PPLC) – a group of 300 major firms with sustainability accreditations.

It found that firms in the PPLC reaped a 15% better return over a seven-year period between 2004 and 2011.

This is on top of a study by DB Climate Change Advisors, Deutsche Bank’s climate change research arm, which after looking at over 100 academic papers into sustainable investment, found that 89% displayed evidence for “market-based outperformance” for companies that factored sustainability into their investment strategies.

A recent survey of over 1,000 financial advisers in the US showed that 38% expressed a strong interest in sustainable investment, and 69% saw it as an opportunity to grow their practice. And Anders Faijersson Ferguson, one of the researchers, told Blue & Green Tomorrow that “advisers can lead by learning about sustainable investment”.

The survey, called Gateways to Impact, also said that the results point towards a market potential of $650 billion in the US alone.