ESG investments have strong potential for mitigating risk by providing earnings stability. Highly rated ESG companies may do more than benefit society—they may benefit your portfolio too.
Source: Bank of America Merrill Lynch (based on median EPS performance over 5-year periods from 2005-2015)
- Companies with the highest environmental, social, and governance (ESG) scores generated the lowest future increases in earnings per share (EPS) volatility over five-year periods. Conversely, companies with the lowest ESG scores saw the volatility of their EPS swell the most. (See chart)
- Earnings stability matters. Throughout the 10-year period ended 2015, companies with high ESG scores experienced smaller price declines than other equities.1
- ESG companies vary widely on their individual environmental, social, and governance scores; an active approach to investing in a portfolio of ESG firms may be advantageous to many investors.
1 Bank of America Merrill Lynch (2016) “ESG: good companies can make good stocks.” Equity Strategy Focus Point.