Nest research shows logic of ESG approach

Research presented to the Ethical Investment Research Service (Eiris), seen by PW, uses standard deviation calculations to compare funds’ volatility alongside their approaches to a number of share ownership factors.

It scored 270 companies for corporate governance and board quality, human resources policies and attitude to climate change – and ascertained that, for every ‘point’ they score in each of these factors, volatility falls by around 8% of a point.

The data comes as several household-name UK companies have been rocked by corporate governance issues over the past month.

Insurer Aviva and publisher Trinity Mirror have been forced to sack their chief executives on the back of shareholder pressure.

Andrew Moss spent six years at the helm of Aviva, during which time its share price plummeted around 65%.

Sly Bailey enjoyed an even more disastrous tenure at Trinity Mirror, overseeing the group’s decline from the FTSE 100 to the Aim – the index for the UK’s smallest listed companies.

It’s share price fell 90% during her decade in power, while the company’s local publishing arm was gutted.

Lastly, BP was warned it could face a resurfacing of lawsuits over 2010’s Gulf of Mexico oil spill, after US lawyers began offering to pursue a new form of legal recourse based on state, rather than federal law.

Mark Fawcett, chief investement officer at Nest, said: “We believe responsible, well-run companies and projects offer superior long-term value to investors, and it’s in our members’ interests that the companies we invest in produce sustainable and stable growth for decades to come.

“For us, part of this duty is about integrating the consideration of environmental, social and governance (ESG) issues across all the asset classes and markets we invest in, as well as exercising our voting and engagement rights.”

Louise Rouse, director of engagement for shareholder activists Fair Pensions, added: “These results are yet further evidence for fund trustees of the financial relevance of ESG issues.

“This adds to the existing body of evidence showing that fiduciary investors should feel confident that ESG integration is a sound investment strategy.”