AMP rewards responsibility
By Michael Bailey
A COMPANY’S level of social responsibility has become a bigger factor in the management of AMPCapital Investors’ (AMPCI) sustainable and mainstream Australian equity funds, following research showing that the best behaved stocks were rewarded a 3 per cent premium over the worst behaved in the last decade.
AMPCI split the ASX 300 in half, putting what it deemed the most responsible stocks in each sector — mining, banks and so on — into one group and the least responsible into another.
The level of responsibility was evaluated on a company’s ability to fulfil its financial and legal responsibilities to all its stakeholders, as well as how well it managed its workplace environmental and supply chain issues and its reputation in conducting business.
The manager then compared the performance of the two groups after stripping out factors like momentum and market cap, to gauge what head of sustainable funds Michael Anderson called the “pure corporate social responsibility effect”.
The most responsible stocks beat the other group by 4.79 per cent over the three years to December 31, 2004, and by 3.04 per cent over the 10 years to that date.
Anderson’s team also tested the effect of industry sustainability; that is the broader social, economic and technological trends that could have a tangible impact on a company’s future strategic and financial position.
The effect of this was “statistically insignificant” over 10 years, but Anderson pointed out that sectors like mining had 20-year cycles and he expected the factor would affect performance over such a timeframe.
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