New analysis conducted by the NYU Stern Center for Sustainable Business in partnership with Rockefeller Asset Management shows that improved financial performance due to ESG becomes more noticeable over longer time horizons.
“We’ve seen an exponential increase in ESG and impact investing as evidence builds that business strategy focused on material ESG issues goes hand-in-hand with high-quality management teams and improved returns,” said Professor Tensie Whelan, the centre’s founding director.
Sustainability initiatives also appear to drive better financial performance at corporations due to factors such as improved risk management and more innovation, while providing downside protection during social and economic crises.
“Our analysis demonstrates the benefits of incorporating ESG information into an investment process for long-term investors managing through varying economic cycles toward a low-carbon future,” said Casey Clark, managing director for global head of ESG investments and portfolio manager at Rockefeller Asset Management.
“I believe that research in the years ahead will increasingly focus on the risk and return relationship between ESG leaders, ESG improvers and thematic strategies. That is the future of sustainable investing.”
However, ESG disclosure without an accompanying strategy does not drive financial performance.
The researchers surveyed some 1,141 peer-reviewed papers and 27 other meta-reviews published between 2015-20, finding a positive relationship between ESG and financial performance in 58 per cent of the corporate studies focused on operational metrics or stock price. Almost 60 per cent of investment studies showed similar or better performance relative to conventional investment approaches.
“This research is especially timely in light of the SEC under President Biden pushing for disclosure of ESG and climate change risk. Our findings can serve as a key resource for the SEC’s new chairperson as s/he shapes future regulations,” said research fellow Ulrich Atz.