Ethical groups outperform peers

Large ethical companies consistently outperform the market, according to a survey of corporate social responsibility by Goldman Sachs, the investment bank.

The study found that companies on an ethical list compiled by Goldman outperformed the MSCI World Index by an average of 25 per cent, with 72 per cent of companies outperforming their sector peers.

Most existing ethical indices, such as the Dow Jones Sustainability Index and FTSE4Good, have underperformed the stock market average since 2000. Goldman claims this occurs because the indices are based on ethical environmental, social and governance (ESG) factors in isolation.

The GS Sustain focus list instead identifies ESG measures relevant to specific sectors, such as energy or pharmaceuticals, and combines them with other indicators of performance.

The findings are echoed in a new survey by consultancy McKinsey, which found that business leaders increasingly regard socially responsible conduct as creating competitive advantage and boosting performance rather than as a costly burden.

Both reports are being launched ahead of a two-day summit in Geneva of the UN’s Global Compact, which enjoins companies to respect 10 core principles on human rights, labour standards, the environment and anti-corruption.

More than 3,000 companies from 116 countries have signed up to the compact, more than half of them in developing countries including China, India and Brazil.

McKinsey’s survey of about 400 top executives of Global Compact companies shows almost all are doing more than five years ago to incorporate ESG issues into their core strategies.

However, the survey reveals a big gap between good intentions and corporate practice. While three-quarters of chief executives said ESG issues should be embedded into company strategy and operations, only 50 per cent thought their company did so.

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