Do sustainable companies perform better?
Updated Feb. 7, 2023
Updated Feb. 7, 2023
The simple answer is yes.
Sustainable Platform’s independently produced data shows that the 1,000 most sustainable companies in the world outperformed major market indices by 20% over the past 5 years.
But let’s take a closer look.
In 2017, following the UN’s release of the Sustainable Development Goals (SDG’s), Sustainable Platform defined a way to measure the sustainability of a company by way of their contribution to these SDG’s, which is described as a company’s Net SDG contribution.
A company’s Net SDG contribution as calculated by Sustainable Platform is a measurement of the positive impact a company makes, minus their exposure to industries known to harm society or the environment.
It can be calculated in monetary terms, or as a percent of company revenue.
To produce our list of the 1,000 most sustainable companies we went through our database of 22,000+ global companies (available here) and sorted them by their Net SDG contribution.
Sustainable Platform’s list of companies with the highest net sustainability contribution, outperformed global (iShares All Companies ETF URTH) and Australian (ASX 200 ETF IOZ) indices financially by 19% and 23% respectively over the past 5 years.
The 1000 most sustainable companies’ contribution to SDGs over the past 5 years was calculated to be a total of $7.77 B, if all companies were in a portfolio and equally weighted with 0.1% of the portfolio allocated to each stock.
This total contribution includes $7.24B toward social impact and $531.64M toward environmental impact.
Good Health and Wellbeing, Sustainable Cities and Communities, Zero Hunger and No Poverty were the main SDG’s these companies contributed to. This is shown in the following chart:
Furthermore, the climate alignment of these same companies is less than 1.5 Deg C. compared with the global average of 4 Deg C. The ASX 200 is aligned to a 4 Deg C world, the S&P 500 a 4 Deg C world and the iShares World ETF, a 4 Deg C world.
Also, the Greenwashing Risk of the 1,000 most sustainable companies was 2.38% compared with the Greenwashing Risk of the ASX 200 of 4.04% and the S&P 500 of 10.0%.
Greenwashing is when a company makes misleading or unsubstantiated claims about environmental performance in relation to their products or activities.
With the recent rush of net-zero and emissions-reduction targets, disclosure and regulations and pressure from investors who have been riding an ESG-led market boom it’s important today, more than ever, that fund managers source independent data to reduce greenwashing risks and resolve discrepancies.
In summary, the average Net SDG contribution for the 1000 most sustainable companies was 73.9%.
By contrast the ASX 200 index companies ETF (IOZ) Net SDG score was 52.8%, the S&P 500 ETF (IVV) was 50.4% and the iShares World ETF (URTH) was 50.4%.
Fossil fuel companies with multiple environmental fines and those contributing to high social inequality were excluded from the top 1,000 list.
Using Sustainable Platform, you can search for companies with the highest Net SDG contributions including lithium miners, new energy providers, health care companies, food distributors and electric vehicle manufacturers.
Sustainable Platform Founder and CEO, Mark Andrich, said the results clearly show that sustainable companies perform better financially over medium to long periods.