Decades of studies on the financial performance of ESG investment strategies show that far from being a burden on performance, an ESG approach can help enhance portfolio returns while at the same time achieving a positive societal, environmental or governance impact.

 

On the heels of our first CIO special on ESG investments, this second instalment analyses decades of studies to prove whether financial performance and positive societal impact can go hand in hand and which ESG strategies have proven to produce the best results for investors.  

 

“Empirical evidence shows how non-financial considerations can help companies improve their profitability and hence enhance investment returns for investors” 

The investment literature and the empirical evidence point to a highly diversified realm of ESG investments, each with their own risk and return profiles, and of course with their own different impact on society. Therefore generalizations are hard to make, but it is evident that the more sophisticated ESG approaches of recent years have, on average, little or nothing to envy of their non-ESG peers in terms of financial performance.

 

“We have found that those fixed income managers who run companies through an ESG screening before buying their debt suffer from fewer defaults in their portfolios. This is a remarkable example of how non-financial considerations have a direct financial impact” 

It has long been argued that integrating considerations about environmental, social and governance aspects into investment portfolios reduces the investable universe and thereby inevitably detracts from financial performance. In this publication, we show why this is not the case and in which instances ESG aspects, far from representing a cost, can have a positive effect on both investment returns and risk considerations.

 

“Research shows that more often than not, socially responsible investors do not sacrifice financial performance by reaching their non-financial goals”

In several cases, ESG strategies outperform similar non-ESG portfolio, often for reasons to do with risk avoidance and security selection.

 

Executive summary from CIO Insights Special ‘Making a positive impact on financial performance and on society’, published April 2018.