COVID has accelerated the social awakening, and whilst social factors have, on average, been effective in each of the last six calendar years, in 2020, when the coronavirus pandemic proved its virulence, these factors have proved especially important.

The assessment comes in research from the global equities team at the international business of Federated Hermes, showing that companies with good or improving social practices can potentially add up to 17bps each month to returns.

Revisiting the last bi-annual study in 2018, A Social Uprising, to examine how ESG factors have behaved during this period of market tumult, results this time showed the social premium has increased from an average of 15bps per month in 2018 to 17bps in 2020.

Social considerations, along with the climate crisis, seem to have concentrated investors’ minds and, as they have integrated them into their investment decision-making, more companies have been challenged for their behaviour.

Even high-growth names that have historically often been run under dominant management with little regard to traditional standards of corporate governance have not been immune to the social awakening in recent years. Those companies with more social awareness than their peers have tended to outperform. Investors are willing to forgo traditional safeguards around company management to gain exposure to a hyper-growth company, but they appear less willing to sacrifice the treatment of employees and the broader society.

Commenting on the findings, Lewis Grant, senior global equities portfolio manager, said: “Our last study in 2018 proved social factors to be statistically meaningful for the first time. Today however, we have seen the social premium increase with the ESG spotlight turning to how companies treat their employees, customers and suppliers. We have long argued that ESG factors can generate alpha in both bull and bear markets, and those companies which play an active role in adapting to and mitigating some of the greatest challenges that we face today are likely to be rewarded.”

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