Why Good Companies Can Make Good Stocks

Savita Subramanian, head of U.S. Equity and Quantitative Strategy at BofA Merrill Lynch Global Research, explains how businesses that focus on environmental, social and governance (ESG) factors can improve their bottom line

CAN COMPANIES THAT CONSIDER their environmental impact, make diversity a priority, or focus on responsible corporate governance achieve better long-term financial results? There is growing evidence that the answer may be “yes,” according to The ABCs of ESG, a report that explores looking beyond financial factors to assess a company’s health. In fact, ESG can help investors identify companies that are less likely to go bankrupt, less likely to have large price or earnings declines, and are more likely to become high-quality stocks in the future.

As Savita Subramanian notes in the video above, “At a very basic level, ESG investing incorporates thinking about factors that extend beyond valuation or growth.” More and more investors are recognizing the power of this approach, as can be seen in the rapid rise in investments in U.S. equity funds that focus on ESG since 2000 (see carousel below). The report also concludes that investor interest is just getting started. According to Subramanian, “Our research makes us confident that ESG investing is here to stay.”

Examples of ESG Factors

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