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Chart of the Week: Companies that Give More Pre-Tax Profits to Charity Tend to Have Higher ROE

In this edition of our Chart of the Week series, we take a closer look at our charitable giving data to analyze whether there are meaningful trends around the ROE of Russell 1000 companies that prioritize generosity using a percentage of their pre-tax profits. 

Breaking down the Russell 1000 companies we rank into quintiles based upon highest to lowest five-year ROE – with five being the top quintile and one being the bottom – there seems to be a strong correlation between higher ROE among companies in quintiles 2-5 and higher percentage of pre-tax profits given to charity. Analyzing the top quintile, the companies with the highest five-year ROE give double the amount of pre-tax profits to charity than the second quintile, implying that shareholders benefit when companies prioritize community support. 

However, as evident in the chart below, Q1 appears as a strong outlier skewing the trendline. Looking into the data, we see two companies driving the charitable giving ratios higher than others in our rankings. These two companies, although they may underperform on five-year ROE, are producing strong financial outperformance over the trailing one year.  Freeport-McMoran, ranked 103rd overall out of 928 JUST-ranked companies and first overall by charitable giving ratio, has a 323.16% total return in the trailing year as of March 31,2021. The other company driving the outlier, Horizon Therapeutics plc, is tied with Freeport-McMoran for the highest charitable giving ratio overall and has a total return of 210.74% over the trailing year. Looking to the chart below, and given the data above, there tends to be a trend among community support and profitability.

 

As for why this is important, CECP’s “Giving in Numbers” report on the corporate charitable giving practices of 223 companies in 2019 shows median total community investments were $23.5 million. This marks a 7% increase in median total charitable community investments for these companies from 2017. These companies saw an overall positive financial performance in terms of median revenue (+8%) and pre-tax profit (+3%) in the same period, which went hand-in-hand with an increase in the median ratio of total community investments as a percentage of pre-tax profit. 

One of JUST Capital’s strategic partners, Uncommon Giving – a donor-advised fund platform – recently launched the Uncommon Generosity 50 Equity Index powered by JUST Capital’s corporate giving datasets. The index is constructed by selecting the 50 companies in the S&P 500 who score highest on charitable giving and allows all investors to incentivize companies prioritizing local community support. 

Uncommon Giving’s (uncommongiving.com) platform helps to promote generosity and increase charitable giving among individuals, companies and nonprofits. We are hopeful there will be further alpha related to corporate giving and are open to creating new, differentiated stakeholder-driven investment products that drive assets to more just companies. Please reach out to us if you are interested in collaborating. 

If you are interested in learning more about the Uncommon Generosity 50 Equity index, data offerings, or index licensing, please reach out to our Director of Business Development, Charlie Mahoney, at cmahoney@justcapital.com to discuss how we can create a more JUST economy together.

The information contained herein is for informational purposes only without regard to any particular user’s investment objectives, risk tolerances or financial situation and does not constitute investment advice, nor should it be considered a solicitation or offering to investors residing outside the United States. JUST Capital makes no representation as to the advisability of investing in any investment fund or other vehicle. Shares of JUST are made only by prospectus. The addition, removal, or inclusion of a security in any JUST Capital index is not a recommendation to buy, sell, or hold that security, nor is it investment advice. The JUST Parties do not in any way sell, sponsor, support, promote, or endorse any securities based on the Uncommon Generosity 50 Equity Index, or have any involvement in their operations or distribution. Prospective investors should not make a decision to invest in any investment fund or other vehicle based on the information contained in this website, and JUST Capital shall not be responsible or liable for any advice given to third parties or decisions to invest in any investment fund or other vehicle by you or third parties based on the information. Index performance does not reflect the deduction of any fees or expenses. Past results of the Uncommon Generosity 50 Equity Index are no guarantee of future performance.

The Uncommon Generosity 50 Equity Index, is calculated and maintained by S&P Global using the S&P 500 Index as a starting universe, and leverages JUST Capital’s charitable giving datasets. S&P Global does not sponsor, endorse, sell, or promote any investment vehicle that is offered by any third party that seeks to provide an investment return based on the performance of any index. It is not possible to invest directly in an index.

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