The paper Responsible Investing: New evidence, new energy identified a series of hypotheses around the impact of responsible investment on performance before reviewing more than 300 academic and other published papers to determine if the hypotheses are supported by evidence.
The most persuasive findings relate to corporate financial performance. A variety of studies see neutral or positive evidence that companies that have pursued substantial environmental and social policies since the 1990s perform better than lower credentialed peers on accounting measures such as return on equity and return on assets, and in terms of stock market performance over time.
In addition, companies with higher ESG ratings exhibit lower share price volatility than those that don’t. This is because good ESG performers generally have better risk management processes, more robust governance structures and more consistent engagement with stakeholders.
The paper concludes by noting that this performance alongside regulatory shifts and the increase in consumer interest in responsible investment are all powerful factors that will fuel growth over the coming years.
Lorna Blyth, head of investment solutions at Royal London, said:
“This paper not only makes a strong case for the benefits responsible investment can deliver, it also makes a commercial and compliance case for financial advisers and other key players in the industry to embrace greater sustainability. What is clear is that it is no longer feasible for financial advisers or asset managers to treat responsible investing as an optional extra – those that do risk being left behind.”
Gareth Mee, sustainable finance consulting leader and partner at EY, said:
“Responsible investing is now well and truly recognised across the industry as the right thing to do, ethically and financially. We see time and time again that companies with strong ethics and good governance are the ones that do well long term, through tough economic times and in good years. As ESG becomes more embedded within financial services, responsible investing will act as a cornerstone to activity, strengthening and protecting capital markets.”