Companies Beat Overall Market – Return More Than 25 Percent
The UN Global Compact today launched the “Global Compact 100” – a stock index of companies committed to the Global Compact ten principles that shows a total investment return of 26.4 percent during the past year, surpassing the general global stock market.
The “GC 100”, released in partnership with research firm Sustainalytics, is composed of a representative group of Global Compact companies selected based on their adherence to the Global Compact’s ten principles as well as evidence of executive leadership commitment and consistent base-line profitability.
The GC 100 tracked the stock market performance of these companies during the past three years, comparing the results against a broad market benchmark, the FTSE® All World. The data for total returns is as follows:
- GC 100 rose 26.4% during past 1 year; FTSE® All World rose 22.1%
- GC 100 rose 19.0% during past 2 years; FTSE® All World rose 17.7%
- GC 100 rose 12.0% during past 3 years; FTSE® All World rose 12.0%
“While the performance of the GC 100 should not be seen as clear evidence of a causal relationship between a commitment to corporate sustainability practices and stock performance, there appears to be an exciting correlation,” said Georg Kell, Executive Director the UN Global Compact. “Moreover, the results may also reflect the fact that sustainability performance is a factor that is receiving increasing interest from investors.”
The GC 100 marries corporate performance on environmental and social issues with a requirement of basic profitability. Kell added, “Sustainability performance should not be looked at in isolation so we included a requirement of basic financial good health. Both factors are often taken as proxies for the quality of management, which can be an important determinant of investment returns.”
“We are very pleased to see the results of this new research. The performance of the GC 100 Index over the past two years is particularly notable,” said Michael Jantzi, Chief Executive Officer of Sustainalytics. “Portfolios containing companies that exhibit enhanced extra-financial risk management characteristics have the potential to perform better over time. We developed the GC 100 to test that hypothesis and these initial results are positive.”
Sustainalytics carried out the research in constructing the GC 100, using a proprietary methodology that takes into consideration a range of indicators based on the Global Compact’s ten principles in the areas of human rights, labour standards, environmental stewardship, and anti-corruption. In creating the index, Sustainalytics only evaluated those Global Compact signatories that are currently covered in its research universe – 713 companies in total. (The Global Compact today includes almost 8000 corporate signatories, of which approximately 1000 are publicly traded companies.)
“It is important to stress that we are not saying that these 100 companies are the best performers in the Global Compact,” said Mr Kell. “The Global Compact has many thousands of companies that are doing excellent sustainability work. We merely wanted to experiment with the link between sustainability polices and stock-market performance. And the initial results are very encouraging.”
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Eligibility for the Index:
Companies are eligible for the GC 100 if they or their parent company have been Global Compact signatories for a minimum of one year, are publicly listed, and fall within the research universe of Sustainalytics, which provided the research for the index. As well, they must pass a financial screen that requires positive pre-tax earning on average for the 3 years preceding the index annual review. In the case that a company is already a constituent of the index, it will only be removed if there are two consecutive years of negative 3-year average earnings figures.
Constituent Selection Process:
The constituents of the GC 100 are reviewed on an annual basis in September.
Constituents are chosen for the Index with the dual goal of having a sector representation (free-float market cap weights) within a range of the key, well-known global indexes; and to choose companies that have strong practices and performance in adhering to the principles of the UN Global Compact around management of human rights, labour rights, the environment and anti-corruption. Among the indicators used in the selection of the constituents were the company’s level of reporting in relations to the Global Compact’s required annual Communication on Progress and whether or not the company’s chief executive submitted its required annual letter of support for the UN Global Compact and its principles.
As part of the index annual review, there may be changes in the constituents to better align the sector representation of the GC 100 with global indexes or to replace some constituents due to changes in company practices or performance with respect to implementation of the Global Compact principles.
Disclaimer: The GC 100 was in no way produced, endorsed or supported by FTSE or its licensors.
Sustainalytics is an award-winning, independent provider of environmental, social and governance (ESG) research and analysis, and responsible investment services. With more than 20 years of experience, Sustainalytics offers a variety of solutions to investors implementing socially responsible and responsible investment strategies. The firm has more than 120 staff members, including more than 70 analysts with a variety of multidisciplinary and industry expertise. In 2012, Sustainalytics was voted Best RI Analysis firm by Thomson Reuters Extel Awards. www.sustainalytics.com
UN Global Compact: Kristen Coco, Public Affairs and Media Relations, +1 917-288-0787
Sustainalytics: Melissa Chase, Marketing Specialist, +1 647-317-3646