There is growing demand among investors to contribute to better world as research shows one-fifth of listed companies globally make positive impact
New research by NN Investment Partners (NN IP) has revealed that one in five listed companies globally is making a positive impact, as defined by the United Nations’ Sustainable Development Goals (SDG’s). The study, which was based on analysis of 15,000 companies in the CS Holt database of listed stocks, found that almost 3,000 (19%) met the criteria to be considered ‘positive impact companies’.
NN IP’s analysis shows that companies pursuing a positive social or environmental impact outperform the overall listed company universe, delivering higher growth rates and higher-quality returns and enjoying a lower cost of capital. Positive impact companies deliver five-year sales growth of 12% on average, versus seven percent for neutral or negative impact companies, according .
‘Our findings underscore our belief that financial and societal returns can go hand in hand,’ said Willem Schramade, senior portfolio manager, NN Investment Partners, commenting on the study. ‘Our research debunks common arguments and assumptions that support the myth that impact investing costs money or leads to worse risk-return metrics.’
In recent months, there have been a number of structured products listed on the SRP’s database for which the amount collected is used by the issuing company to finance products that are funded, in a controlled manner, to have a positive impact on the economy, the society or the environment.
In the Netherlands, Kempen collaborated with Société Générale for the Positive Impact Finance 95% Duurzame Garantie Note 19-25, a six-year, 95% capital protected medium-term note that participates 100% in the Eurostoxx Sustainability 40 Price Index.
“We see a growing need among our clients to invest sustainably and to contribute to a better world via investments,” said Marcel Pronk (pictured), structured investment sales, Kempen.
“In that context, we launched the SG Positive Impact Finance 95% Sustainable Guarantee Note 19-25 in February,” said Pronk, noting that in addition to the subscriptions in the primary market, Kempen also regularly sees investors buying this product in the secondary market.
Another positive impact note was seen in France where Milleis distributed France Impact Durable in May last year while in the US Bank of New York Mellon was behind a worst-of autocallable note, which was also linked to the theme.
Within the positive impact universe, NN IP found that more than 60% of firms either provide access to health solutions (45%) or contribute to the low-carbon transition and circular economy (18%).
Overall, the results indicated approximately a 20-60-20 distribution of positive, neutral and negative impact companies. The research also highlighted the importance of fundamental analysis in sustainability-focused investing with researchers identifying many companies that may be ready to take the next step in adopting a more sustainable business model, as their products are gradually improving or less damaging than those of peers.
Initially, the research seems to show that positive impact companies underperform in the short term, with cashflow return on investment (CFROI) just 2.7% above their cost of capital, versus 2.9% for neutral or negative companies. However, if companies with a market cap below US$1 billion are excluded, positive impact companies deliver 7.3% above the cost of capital, versus 4.9% for non-impact stocks.