Values-Based Investing & Financial Performance

Demystifying the Link

"Is it possible to invest with my conscience AND still generate competitive returns in my investment portfolio?"

We have learned that most investors fear they are sacrificing financial returns when it comes to Values-Based Investing (VBI). This cannot be farther from the truth.

Really? Yes…Research undertaken by the University of Hamburg and Deutsche Asset Management concluded that there is a positive correlation between Environmental, Social, and corporate Governance (ESG) issues and corporate financial performance. (Source: Deutsche Bank — “ESG & Corporate Financial Performance: Mapping the global landscape.” )

In fact, 62.6% of the studies examined in this research report show a link between ESG factors and financial performance. By examining ESG factors, we begin to understand a company’s non-financial risk. Although traditional investment analysis does not take into account non-financial risk, we believe doing so can provide insight to a company’s financial performance. By incorporating a company’s ESG factors into investment analysis, we begin to develop a more thorough understanding of a company’s financial and risk profile. Case in point: we’ve already seen what regulatory risk (Wells Fargo) and environmental risk (BP) can do to a company’s stock performance.

The figure below illustrates the influence each of the ESG pillars has on a company’s financial performance. Interestingly, the G in Governance shows the highest correlation with financial performance. This should be no surprise since effective corporate governance is vital to a company’s performance when viewed from from a long-term perspective.

Environmental, Social & Governance categories and their relationships to CFP. Source: Friede, Busch, Bassen (December 2015).

As the demand for Values-Based Investing (VBI) increases around the world, Portola Creek is uniquely positioned to help investors align their portfolio with their individual values AND generate returns in their portfolio.