Investors who incorporate environmental, social and corporate governance (ESG) factors in their investment decisions will not always miss out on strong performance, a new report has found.
According to the Demystifying Responsible Investment Performance Report by Mercer and the United Nations, responsible investment did not mean investors gave up returns.
“The majority of Mercer clients want to make sure that integrating ESG won’t hurt returns and will help manage downside risk. This report goes some way towards establishing that,” Mercer Investment Consulting business global head Tim Gardener said.
The report was based on a review of 20 academic and 10 broker research studies on ESG factors.
Of the 20 academic studies reviewed, 10 found a positive relationship between ESG factors and performance, seven were neutral and three were negative.
The report concluded that taking wider factors into account in the investment management process, such as ESG factors, did not appear to bring a performance penalty.
However, Mercer responsible investment business principal Danyelle Guyatt said more academic research was needed beyond screening, including the effect of engagement and integration in stock selection.
“Systematic translation of ESG factors into quantitative inputs and financial ratios still needs to be developed,” the London-based Guyatt said.
There is also some confusion within the academic community about whether responsible investment should be a style of its own.”
The report was co-authored by Mercer’s responsible investment business and the Asset Management Working Group of the United Nations Environment Program Finance Initiative.
