On November 5, ESG (Environmental, Social, and Governance) evaluation and investment advisory firm Sustinvest announced that investment strategies utilizing ESG sub-indicators with high financial materiality have demonstrated higher long-term returns and stable risk management performance compared to the KOSPI.
According to the "Analysis Report on Investment Strategies Utilizing ESG Sub-Indicators" released by Sustinvest on the same day, the firm analyzed the performance since 2020 of an equally weighted portfolio composed of KOSPI-listed companies that received an A rating in each ESG category. Sustinvest conducts ESG evaluations every year in the first and second half, assigning one of five grades, from A to E, for each category.
As of the end of September, the equally weighted portfolio composed of A-rated stocks recorded cumulative returns of 121.37% for environment, 97.96% for social, and 33.32% for governance. Considering that the equally weighted KOSPI index posted a return of 63.12% over the same period, it is clear that strategies utilizing environment and social ratings significantly outperformed the benchmark.
Sustinvest especially noted that the annualized return of the strategy investing in stocks with an A rating in environment was 14.82%, showing an excess return of 5.94 percentage points per year compared to the benchmark index, which is a remarkable performance. The report explained, "Although the governance strategy underperformed the equally weighted KOSPI index in terms of returns, it exhibited lower volatility compared to the equally weighted KOSPI, environment, and social strategies, demonstrating defensive characteristics."
Additionally, the report included a statistical verification of the correlation between ESG sub-indicators and financial performance, identifying financially significant indicators and analyzing the results of incorporating them into investment strategies. The analysis found that investment strategies utilizing ESG sub-indicators with financial materiality in the environment and social categories showed improved returns compared to the existing category-based strategies.
The cumulative returns for the entire period of investment strategies utilizing ESG sub-indicators were 136.38% for environment and 113.69% for social, representing excess returns of 15.73 percentage points and 15.01 percentage points, respectively, compared to the existing strategies. The report stated, "Investment strategies that additionally utilize ESG sub-indicators with high financial materiality delivered differentiated results by further excluding stocks with insufficient sub-indicator performance, even among companies with a certain level of environment and social performance (A rating)."
The report also emphasized, "When comparing the returns of these ESG sub-indicator-based investment strategies to major ESG indices, both the environment and social strategies outperformed the key ESG indices of the Korea Exchange." For example, the annualized return of Sustinvest's environment sub-indicator investment strategy from January 2020 to September 2025 was 16.14%, significantly exceeding the KRX Eco Leaders index's 8.85%. The social strategy also posted an annualized return of 14.12%, surpassing the Korea Exchange's social-related index, the KRX ESG Social Responsibility Management Index (S, 11.75%).
Choi Bokyung, Senior Researcher at Sustinvest, stated, "We confirmed that utilizing sub-indicators with financial materiality in addition to category ratings improves returns compared to simple rating-based strategies," adding, "This empirically demonstrates that strategies considering both ESG performance and financially significant indicators can lead to excess returns." Ryu Youngjae, CEO of Sustinvest, commented, "We hope this analysis will serve as a catalyst for the spread of investment strategies utilizing ESG information and contribute to the resurgence of the domestic ESG public fund market."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
