JUST Capital’s Quarterly Review of Stakeholder Performance – Q3 2023

This report was written by Mona Patni, Director of Quantitative Research & Analytics.

After a strong start to 2023, the Russell 1000 was down 3.15% in Q3, bringing its year-to-date gains to 13%. On a sector level, nine of the 11 Russell 1000 sectors finished the third quarter with negative returns, a stark reversal from the broad gains of the second quarter. Energy was, by far, the best-performing sector, thanks to a surge in oil prices driven by oil production cuts from Saudi Arabia and Russia. Communications Services also finished Q3 with a slightly positive quarterly return, driven in part by hopes that advanced artificial intelligence would boost search and social media companies’ future advertising revenues.

Looking at sector laggards, the impact of rising bond yields was again clearly visible as Consumer Staples, Utilities, and Real Estate were the lowest-performing sectors in the third quarter. Those sectors offer some of the highest dividend yields in the market, but with bond yields quickly rising, those dividend yields become less attractive, leading investors to rotate out of the high-dividend sectors and into less-volatile bond funds as a result. The IT sector also was one of the weakest this quarter.

JUST Capital found that four of the five stakeholders we track delivered positive performance in Q3 2023. However, over the longer term from Jan 2018 to September 2023, the leaders in corporate stakeholder performance across all five stakeholders have outperformed the laggards by 56.5% as measured by JUST Overall Score. In Q3 2023, the Workers stakeholder delivered the strongest performance over this period with a long-short spread of 7.24%, while the Communities stakeholder fared most poorly at -0.76%. Within the Workers, Shareholders & Governance, and Environment stakeholders, outperformance was driven by both deciles, with the top decile outperforming and bottom decile underperforming. For the Communities stakeholder, underperformance was driven by the top decile, whereas for the Customer stakeholder, the top decile underperformed.

JUST Capital’s Overall Weighted Score takes into account the 20 core Issues determined through our annual survey research – including paying a living wage, creating a diverse, inclusive workplace, and helping combat climate change – across key business stakeholders: Workers, Communities, Shareholders & Governance, Customers, and Environment. This Overall Weighted Score had a positive long-short spread of 4.02% over the period ending September 30, 2023, which was an improvement from Q2 2023 at -1.43%.

Shown below is the Year-to-Date (YTD) and Q3 performance, which is quantified by the spread between the top and bottom deciles for each stakeholder as well as the overall weighted score. Year-to-date, the Workers stakeholder has delivered the strongest performance and the Communities stakeholder has delivered the weakest.

Workers

The Workers stakeholder measures a company across five Issues:

• Living Wage
• Health & Safety
• Benefits & Work-Life Balance 
• Diversity, Equity, and Inclusion
• Workforce Advancement 

In Q3 2023, we saw all five issues deliver positive performance, with Living Wage and Benefits Issues faring the best. Outperformance in all Issues – except Workforce Advancement – was driven by contribution from both top and bottom decile companies, whereas within Workforce Advancement, positive contribution was driven only by the bottom decile.

Shown below are the top and bottom five contributors to the top decile (D1), the top-ranked companies as measured by their Workers score, and the bottom decile (D10), the lowest-ranked companies as measured by their Workers score.

Communities

The Communities stakeholder measures a company across four Issues:

• Local Job Creation
• Human Rights
• Community Development
• Community Support

Human Rights was the weakest performer followed by Local Job Creation, with negative contributions coming from both top and bottom decile companies.

Shown below are the top and bottom five contributors to the top decile (D1), the best-ranked companies as measured by their Communities score, and the bottom decile (D10), the lowest-ranked companies as measured by their Communities score.

Shareholders and Governance

The Shareholders and Governance stakeholder measures a company across three Issues:

• Accountability to Stakeholders
• Ethical Leadership
• Investor Return

In Q3 we saw the Accountability to Stakeholders Issue deliver positive performance, with a long-short spread of 1.79%, whereas Ethical Leadership performance was negative. Investor Return was also positive this quarter.

Shown below are the top and bottom five contributors to the top decile (D1), the best-ranked companies as measured by their Shareholders and Governance score, and the bottom decile (D10), the lowest-ranked companies as measured by their Shareholders and Governance score.

Customers

The Customers stakeholder measures a company across four Issues:

• Customer Privacy
• Customer Treatment
• Transparent Communication
• Beneficial Products

In Q3 2023, we saw Beneficial Products outperform the other Customer Issues, with a long-short spread of 5.6%. Customer Treatment was also positive whereas Customer Privacy and Transparent Communication were negative contributors to Customers performance.

Shown below are the top and bottom five contributors to the top decile (D1), the best-ranked companies as measured by their Customers score, and the bottom decile (D10), the lowest-ranked names as measured by their Customers score.

Environment

The Environment stakeholder measures a company across four Issues:

• Sustainable Materials
• Pollution Reduction
• Climate Change
• Resource Efficiency

In Q3 2023, we saw three of four Environment Issues deliver positive performance, with Sustainable Materials being a negative contributor this quarter.

Shown below are the top and bottom five contributors to the top decile (D1), the best-ranked companies as measured by their Environment score, and the bottom decile (D10), the lowest-ranked companies as measured by their Environment score.

Appendix

Computation Methodology

We monitor the performance of these stakeholders and Issues on a long-short basis. The long and short portfolios are selected based on the factor scores as the top and bottom deciles within the universe of companies we track in the Russell 1000. Top decile (D1) companies are those that rank highest based on the factor score, and bottom decile (D10) companies are those that rank lowest based on the factor score.

D1 Performance is computed as 

(Equally weighted average of returns of stocks in D1 bucket) – (Equally weighted average of returns of all stocks within the Universe)

D10 Performance is computed as 

(Equally weighted average of returns of stocks in D10 bucket) – (Equally weighted average of returns of all stocks within the Universe)

Spread is computed as 

D1 Performance – D10 Performance