ESG and financial performance: aggregated evidence from more than 2000 empirical studies

Autores: Tensie Whelan, Ulrich Atz, Tracy Van Holt, Casey Clark

Data publicação: 2021

Meta-studies examining the relationship between ESG and financial performance have a decades-long history. Almost all the articles they cover, however, were written before 2015. Those analyses found positive correlations between ESG performance and operational efficiencies, stock performance and lower cost of capital. Five years later, we have seen an exponential growth in ESG and impact investing – due in large part to increasing evidence that business strategy focused on material ESG issues is synonymous with high quality management teams and improved returns. A case in point: A recent study looked at the initial stock market reaction to the COVID-19 crisis (up to March 23) and found that companies scoring high on a “crisis response” measure (based on Human Capital, Supply Chain, and Products and Services ESG sentiment) were associated with 1.4-2.7% higher stock returns (Cheema-Fox et al., 2020). Nevertheless, the topic continues to be debated, with some arguing that companies and investors should stick to managing for stock price and that ESG is, at best, a distraction from the real business of making money.

The authors of this report, NYU Stern Center for Sustainable Business and Rockefeller Asset Management, collaborated to examine the relationship between ESG and financial performance in more than 1,000 research papers from 2015 – 2020. Because of the varying research frameworks, metrics and definitions, we decided to take a different approach than previous meta-analyses. We divided the articles into those focused on corporate financial performance (e.g. operating metrics such as ROE or ROA or stock performance for a company or group of companies) and those focused on investment performance (from the perspective of an investor, generally measures of alpha or metrics such as the Sharpe ratio on a portfolio of stocks), to determine if there was a difference in the findings. We also separately reviewed papers and articles focused on low carbon strategies tied to financial performance in order to understand financial performance implications through the lens of a single thematic issue. We found a positive relationship between ESG and financial performance for 58% of the “corporate” studies focused on operational metrics such as ROE, ROA, or stock price with 13% showing neutral impact, 21% mixed results (the same study finding a positive, neutral or negative results) and only 8% showing a negative relationship. For investment studies typically focused on risk-adjusted attributes such as alpha or the Sharpe ratio on a portfolio of stocks, 59% showed similar or better performance relative to conventional investment approaches while only 14% found negative results. We also found positive results when we reviewed 59 climate change, or low carbon, studies related to financial performance. On the corporate side, 57% arrived at a positive conclusion, 29% a neutral impact, 9% mixed and, 6% negative. Looking at investor studies, 65% showed positive or neutral performance compared to conventional investments with only 13% indicating negative findings. A detailed breakdown can be found in Figure 1.

ESG and financial performance: aggregated evidence from more than 2000 empirical studies

Autores: Gunnar Friede, Timo Busch, Alexander Bassen

Data publicação: 2015

The search for a relation between environmental, social, and governance (ESG) criteria and corporate financial performance (CFP) can be traced back to the beginning of the 1970s. Scholars and investors have published more than 2000 empirical studies and several review studies on this relation since then. The largest previous review study analyzes just a fraction of existing primary studies, making findings difficult to generalize. Thus, knowledge on the financial effects of ESG criteria remains fragmented. To overcome this shortcoming, this study extracts all provided primary and secondary data of previous academic review studies. Through doing this, the study combines the findings of about 2200 individual studies. Hence, this study is by far the most exhaustive overview of academic research on this topic and allows for generalizable statements. The results show that the business case for ESG investing is empirically very well founded. Roughly 90% of studies find a nonnegative ESG–CFP relation. More importantly, the large majority of studies reports positive findings. We highlight that the positive ESG impact on CFP appears stable over time. Promising results are obtained when differentiating for portfolio and nonportfolio studies, regions, and young asset classes for ESG investing such as emerging markets, corporate bonds, and green real estate.

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