Mercer study supports positive link between responsible investment and financial performance |
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| News - Alternative Investments | |||||||||||||||||||||||||||
| Thursday, 19 November 2009 15:04 | |||||||||||||||||||||||||||
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Review of academic studies reveals impact of environmental, social and corporate governance on portfolio returns Specific environmental, social and corporate governance (ESG) factors can have a positive impact on portfolio returns, according to a growing body of academic research. In its new report, Shedding Light on Responsible Investment: Approaches, Returns and Impacts, Mercer summarises and comments on sixteen academic studies— the majority of which (ten) show a positive relationship between ESG factors and companies’ financial performance, four of which show a neutral relationship and two which show a neutral to negative relationship (see Table 1). “The idea that responsible investment does not have to come at a cost to performance is becoming well established in the institutional investment industry. In fact, the ‘Shedding Light’ report further builds the already strong case that considering ESG factors can add real and measurable value to an investment portfolio,” said Tim Gardener, global chief investment officer for Mercer’s investment consulting business. The research reviewed in the report include influential, peer-reviewed studies which apply traditional finance theory to ESG factors and span a variety of research methods, regional samples and investment approaches (such as screening, integration, and shareholder engagement). The studies also encompass a variety of geographies, both in country of origin and in markets considered. ”Shedding Light” serves as a follow up to the 2007 Demystifying Responsible Investment Performance report, in which Mercer and the Asset Management Working Group of the United Nations Environment Program Finance Initiative (UNEP FI) studied the existing academic ESG performance research. Considering these two reports together, a total of thirty-six studies examining the link between ESG factors and financial performance have been reviewed. Of these, twenty show evidence of a positive relationship between ESG factors and financial performance; only three show evidence of a fully negative relationship.
Table 1 – Summary of academic research on link between ESG factors and financial performance
The academic studies’ results vary in part due to differing research methods and short sample periods. In the past, studies of this kind tended to focus on the link between ESG factors and listed equities. This exclusive focus on equities is beginning to change, and Mercer’s new report includes several studies examining the financial performance of other types of investments, such as microfinance funds and hedge funds. Add this page to your favorite Social Bookmarking websites          
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