A Swiss bank has concluded that socially responsible European
businesses will ‘inevitably’ reap benefits on the equity markets over
the next few years, even though it failed to find a statistical link
between the social performance of companies and their stock market
value.
Basel-based Bank Sarasin says that an in-house
analysis could find no correlation between the social performance of 65
major European companies and their returns on stock markets.
However, it is ‘convinced that it is purely a matter of time until
socially compatible business management is also honoured with an
appropriate premium on capital markets’.
It concludes: ‘this
inevitably means that investments in socially progressive companies are
likely to be particularly attractive’.
The bank’s analysis of
European stock market returns between mid-May 1997 and mid-May 1999
found a clear and ‘amazing’ link between environmental performance and
equity yields, with the best performing companies adding around four
per cent to their stock market value.
But analysis of social
performance – using social ratings compiled by Bank Sarasin’s
sustainability research department – found neither a negative nor a
positive correlation between social factors and equity value.
Bank Sarasin says this may be because understanding of ‘complex social
cause and effect mechanisms’ is still rudimentary among investors and
the public, ‘and has not yet extended to all the interactions a company
has with its social environment’.
The bank also points out that it is currently harder to pinpoint cost savings from improved social performance.
It adds: ‘the potential correlation between social and financial
performance has hardly been systematically studied to date, and this
may be one reason why the economic rationale of socially compatible
behaviour has so far not been widely acknowledged’.
The
criteria Bank Sarasin’s sustainability research department used to
assess the social performance of a company included customer loyalty,
relationships with suppliers, working conditions, worker participation,
relationships with trade unions, discrimination in the workplace,
product quality and the company’s record on human rights.
Analysts Christoph Butz and Andreas Plattner argue that if the
environmental performance of a company can have an effect on its equity
value, then social performance must also do so.
They claim
that the common features between environmentally and socially
compatible business practices make them ‘convinced of the benefits of
performing a comprehensive rating of a company’s social criteria’.
Bank Sarasin, which has offices in Zurich, Geneva, Hamburg and London,
says it will now carry out a study that covers a period longer than two
years.
