Stocks for companies with a positive social and environmental impact have outperformed peers since the COVID-19 outbreak.
Indexes of the top-50 highest-rated companies on Ethos for Inclusive Economies, Health and Well-Being, Innovation, and 10 other causes outperformed the S&P 500 index over the past 3 months.
42 of 45 causes on Ethos showed a positive correlation between impact and financial performance during the 3-month period (January 17 to April 17, 2020), suggesting that choices companies make about social and environmental impact can affect how well they are able to respond to a pandemic like COVID-19.
3-month returns for selected impact indexes
Companies with positive social and environmental impact may be doing better financially during COVID-19 for several reasons:
- Better governance and risk management. Companies that have been thoughtful about social and environmental risks and impact are more likely to be prepared for a pandemic like COVID-19. Managers of a sustainable business are more likely to give more thought to contingencies. Leaders that govern in an ethical way and treat stakeholders well have proven to be more resilient in times of crisis and volatile markets3
- Low exposure to fossil fuels. Companies that rate highly on sustainability are less likely to be involved in fossil fuel energy production, one of the hardest-hit areas of COVID-19 (and one of the most volatile). Sustainable companies are also likely to be low producers of greenhouse gas emissions, meaning hard-hit travel industries (such as airlines and cruise ships) are likely to have lower sustainability ratings4
- Concentration of tech stocks that score highly on innovation and employee treatment. Information technology was the best-performing sector in the last 3 months,5 and tech stocks make up a disproportionate number of companies in the Innovation index. Tech stocks also tend to score highly on metrics related to job creation and labor policies (such as benefits), which contribute to ratings related to building an inclusive economy
- Better systems supporting health and well-being of employees may have led to less disruption of workforces. Companies that rate highly on health-related metrics tend to provide good health benefits and ensure a safe work environment for employees. When employees feel their well-being and that of their family is secure, they are able to continue focusing on work (and vice versa when they feel their well-being is in peril). Companies that offer employees the support they need are more likely to retain those employees (and reduce turnover costs) and enable employees to continue working during times of crisis
Indexes of top-rated companies for most causes on Ethos significantly outperformed indexes of bottom-rated companies over the past 3 months:
3-month returns and impact/return correlation by cause
| Cause | Top-50 return | Bottom-50 return | Correlation6 |
|---|---|---|---|
|
Inclusive Economies
|
-12.79% | - 30.03% | 16.4% |
|
Child and Maternal Health
|
-12.90% | -27.68% | 15.1% |
|
Reduced Inequality
|
-13.14% | -30.81% | 15.3% |
|
Overall Impact
|
-13.44% | -37.47% | 6.0% |
|
Access to Affordable Healthcare
|
-13.67% | -24.68% | 15.0% |
|
Health and Well-Being
|
-13.79% | -28.90% | 17.1% |
|
Innovation
|
-13.97% | -49.40% | -3.0% |
|
Quality Lifelong Education
|
-14.59% | -30.91% | 15.2% |
|
Technology Innovation
|
-14.91% | -25.71% | 4.1% |
|
Fair Labor Practices
|
-15.01% | -30.34% | 15.5% |
|
Sanitation Access
|
-15.16% | -25.54% | 14.3% |
|
Zero Hunger
|
-15.26% | -29.37% | 16.5% |
|
Affordable, Safe Housing
|
-15.39% | -31.22% | 13.8% |
|
Improved Mental Health
|
-15.50% | -27.74% | 15.5% |
| S&P 500 Index | -15.92% | ||
|
Quality Primary Education
|
-15.93% | -32.33% | 13.0% |
|
Renewable Energy Growth
|
-16.14% | -41.43% | 7.4% |
|
Climate Action
|
-16.15% | -42.42% | 8.8% |
|
Decent Work Opportunities
|
-16.35% | -31.38% | 15.0% |
|
Disaster Readiness and Effective Aid
|
-16.54% | -34.54% | 8.4% |
|
Disease Eradication
|
-16.62% | -45.61% | 5.4% |
|
Quality Education
|
-17.21% | -32.82% | 13.1% |
|
No Poverty
|
-17.27% | -25.22% | 14.1% |
|
Sustainable Use of Natural Resources
|
-17.48% | -39.02% | 18.5% |
|
Sustainable Resource Use
|
-17.95% | -32.12% | 11.8% |
|
Life on Earth
|
-18.00% | -37.67% | 15.6% |
|
Reduced Waste
|
-18.20% | -34.19% | 12.6% |
|
No Violence Against Women
|
-18.38% | -30.31% | 8.7% |
|
Water and Sanitation
|
-18.50% | -27.76% | 14.1% |
|
Terrestrial Biodiversity
|
-18.60% | -38.13% | 19.5% |
|
Free, Secure Flow of Information
|
-19.04% | -49.40% | -8.6% |
|
Humane Treatment of Animals
|
-19.11% | -31.15% | 4.4% |
|
Reduced Green House Gas Emissions
|
-19.16% | -44.83% | 9.1% |
|
Healthy Oceans
|
-19.31% | -36.60% | 15.7% |
|
Equal Pay and Opportunity
|
-19.92% | -19.15% | 11.2% |
|
Safety from Violent Conflict
|
-20.10% | -26.86% | 4.1% |
|
Gender Equality
|
-20.48% | -30.98% | 17.9% |
|
Conflict-Free Mineral Production
|
-20.82% | -28.03% | 3.5% |
|
LGBTQ Equality
|
-21.40 | -33.39% | 14.7% |
|
Peace and Justice
|
-22.57% | -28.35% | 4.8% |
|
Clean Water Access
|
-22.75% | -33.97% | 19.9% |
|
Reduced Use of Tobacco
|
-23.18% | -18.36% | -1.7% |
|
Sustainable Use of Water
|
-23.38% | -34.75% | 10.9% |
|
Reduced Availability of Weapons
|
-25.16% | -31.89% | 1.1% |
|
Access to Justice
|
-25.70% | -29.44% | 1.9% |
|
Accountable Institutions
|
-26.89% | -26.91% | 0.2% |
|
Arts and Culture Access
|
-27.62% | -26.12% | 7.3% |
Ethos creates indexes for top and bottom performers for each cause on Ethos using end-of-day prices and weighting based on the rating for each cause (so the daily stock price for the highest-performer in a cause gets the most weight).
You can explore all causes on Ethos here. For more information, please contact us at support@ethos.so.