We at OWLshares do a lot of evangelizing about the benefits of using environmental, social, and governance (ESG) data in investing. Why? Because we’ve seen it at work. 

Our head of product development recently re-ran our original ESG case studies with a refreshed data set. The results have only strengthened our conclusions.

Since we’ve been studying ESG so extensively, it’s high time we start sharing results. Watch this space for regular additions to the case study library! Meanwhile, here’s the first of many to come.

Chart: Top 1000 US Companies by Size – ESG-Weighted versus Market Cap-Weighted

A simulated portfolio comparison of the 1000 largest US companies from March 1, 2009 to December 31, 2016 demonstrates the benefits of OWL ESG-weighting compared to market capitalization-weighting for a domestic large-cap portfolio. Not only did the OWL ESG-weighted version of the portfolio significantly enhance total returns, but also enhanced risk-adjusted returns as measured by both Sharpe and Sortino ratio.

Interestingly, the Sortino ratio, which accounts for downside volatility, demonstrates a greater positive differential than the Sharpe ratio. This suggests that where there is additional volatility it is largely upside volatility, while downside volatility more closely tracks the market capitalization version of the simulated portfolio.

Disclosure: March 31, 2009 is the first date that the OWL ESG historical database begins. The top 1000 US companies are not all covered in the OWL ESG database. Any companies not covered received a weight of 0.00% and their performance is not reflected in the OWL ESG-weighted simulated portfolio. Factor exposures other than ESG score, such as market capitalization, valuation ratios, and momentum have an effect on performance as well. Past performance is in no way indicative of future results.

The information contained herein (the “Information”) is for illustration and discussion purposes only. It is not, and may not be relied on as, investment advice or as an offer to sell or a solicitation of an offer to buy any security. The Information is not sufficient to form a basis for deciding to make any investment. There can be no assurance and no representation, express or implied, that the Information is accurate. The Information is provided as of the date indicated, is not complete, is subject to change, and no obligation is undertaken to revise or update it.