05 July 2007 | Paul Snell
There is "no correlation" between a company's financial performance and their ethical, social and governance (ESG) standards, a report has found.
A study of 120 firms in five sectors by the investment bank Goldman Sachs said no link had been found between companies that performed well in terms of ESG, and those that perform well on the stock market. "We have found no correlation across sectors or within sectors between any of our ESG metrics and share price performance," it said. The bank examined ESG performance in 20 areas, including suppliers and sourcing.
It said the poor performance of lists such as the FTSE4Good and the Dow Jones Sustainability Index, which measure corporate social responsibility in firms, compared with overall markets showed picking stocks based on these criteria would not earn more money. But it added it could take a while for the impact of ethics to affect financial performance.
Yet it added good performance was related to how much companies pay their employees. "The more you pay the more you get," it said. "This raises questions about the theory of cost control and downsizing as the key to success."