This belief is supported by a growing body of evidence. A good example of a meta-study on the relationship between ESG and performance is the 2015 paper entitled ‘From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance’ by Oxford University and Arabesque Partners.1
This paper examined more than 200 sources – including academic research, industry reports, newspaper articles and books – and concluded that “80% of the reviewed studies demonstrate that prudent sustainability practices have a positive influence on investment performance”.
A separate survey later that year by Deutsche Bank’s Asset and Wealth Management division in conjunction with the University of Hamburg went even further. This research looked at the entire universe of 2,250 academic studies published on the subject since 1970, using data spanning four decades until 2014. It concluded that ESG made a positive contribution to corporate financial performance in 62.6% of meta-studies and produced negative results in only 10% of cases (the remainder were neutral).2
There are several studies that examine the contribution of ESG to corporate performance. One of the first and most famous was that of Paul Gompers of the Harvard Business School in 2003, which found a strong positive link between good corporate governance and results. More specifically, it found that companies with stronger shareholder rights enjoyed higher values, profits and sales growth, had lower capital expenditures, and made fewer acquisitions.3
There is also significant evidence of a link between good human capital management and performance. A study by Alex Edmans of the University of Pennsylvania found that companies listed on Fortune’s 100 Best Companies to Work For (i.e. have satisfied employees) outperform the average company in terms of stock returns.4 In 2005, a study by Jeroen Derwall of Erasmus University noted that companies with a high eco-efficiency outperform their counterparts.5
Why are some still skeptical?
Unfortunately, some of the negative studies are the ones that tend to be the best known by the general public, such as those on the so-called sin stocks, while current discussions still focus predominantly on whether sustainability actually adds value. So why do people’s perceptions of the benefits of sustainability investing differ so widely?
One of the main reasons is that the concept of sustainable investing is very broad. We have identified three different objectives for doing it. First, some investors simply wish to avoid certain companies because their business activities do not match their beliefs. Much of the early academic work, including a paper on sin stocks by Harrison Hong of Princeton University and Marcin Kacperczyk of New York University, focused on these values-based exclusion policies.6
Second, some investors want to create a positive impact by allocating capital to specific companies or sectors that offer solutions to global issues. Although it makes sense to invest in companies that play into specific sustainability trends, financial motives can differ per investor. Sometimes the main driver is the desire to have a positive impact on society. Third, investors increasingly want to exploit the growing amount of data and knowledge on sustainable business models as a way to improve their financial returns.
Different objectives, different outcomes
Distinguishing between sustainable investors’ different objectives makes it easier to separate fact from fiction and say something meaningful about expected financial performance. If investors do not have any financial motives for taking certain steps – such as by excluding particular companies – it is not uncommon to find that investing has no overall impact, or even a negative impact, on returns.
For fundamentally managed equity strategies, excluding stocks need not matter too much, as such portfolios are typically already concentrated. For quantitatively managed strategies, however, restrictions usually tend to limit the power of the model, and therefore its expected performance. Historical tests show that if the number of excluded stocks is modest, the universe is still large enough to retain most or all of its factor exposure.
Financial materiality matters
Most of the studies documenting a positive contribution from sustainability considerations focus on financially material factors. An example is the 2015 research ‘Corporate Sustainability: First Evidence on Materiality’ by Mozaffar Khan of Harvard University. It showed that investments in material sustainability issues can be value-enhancing for shareholders, while investing in immaterial sustainability issues has little impact on returns.7
When investigating the link between sustainability and future investment returns, people have traditionally looked at the link between a firm’s current sustainability profile and its future investment returns. Lately we have also seen studies examining the link between changes in a firm’s sustainability profile and its future performance. Their central hypothesis is that the best time to invest for those seeking to benefit from improvements in firms’ ESG standards is before the improvement is widely recognized – and rewarded – by the market.8
Another interesting stream of research focuses on the financial pay-off of engagements by investors. A 2015 study led by Elroy Dimson of the London Business School documented engagements at 613 US public firms between 1999 and 2009. It showed that after successful engagement, firms’ investment returns were on average higher than would have been expected without the engagement. It also found that after successful engagement, companies experienced improvements in their operating performance, profitability and governance. 9
In conclusion, while we believe strongly in the financial materiality of integrating sustainability into the investment process, and have done so since 2010, it is not an exact science, and does still face difficulties with data availability and interpretation. So, we will continue to research ESG factors to ensure that this information is implemented in our portfolios in the best way possible, and in line with our firm belief that its use in investment processes adds value to our strategies.
本文由荷宝海外投资基金管理(上海)有限公司(“荷宝上海”)编制, 本文内容仅供参考, 并不构成荷宝上海对任何人的购买或出售任何产品的建议、专业意见、要约、招揽或邀请。本文不应被视为对购买或出售任何投资产品的推荐或采用任何投资策略的建议。本文中的任何内容不得被视为有关法律、税务或投资方面的咨询, 也不表示任何投资或策略适合您的个人情况, 或以其他方式构成对您个人的推荐。 本文中所包含的信息和/或分析系根据荷宝上海所认为的可信渠道而获得的信息准备而成。荷宝上海不就其准确性、正确性、实用性或完整性作出任何陈述, 也不对因使用本文中的信息和/或分析而造成的损失承担任何责任。荷宝上海或其他任何关联机构及其董事、高级管理人员、员工均不对任何人因其依据本文所含信息而造成的任何直接或间接的损失或损害或任何其他后果承担责任或义务。 本文包含一些有关于未来业务、目标、管理纪律或其他方面的前瞻性陈述与预测, 这些陈述含有假设、风险和不确定性, 且是建立在截止到本文编写之日已有的信息之上。基于此, 我们不能保证这些前瞻性情况都会发生, 实际情况可能会与本文中的陈述具有一定的差别。我们不能保证本文中的统计信息在任何特定条件下都是准确、适当和完整的, 亦不能保证这些统计信息以及据以得出这些信息的假设能够反映荷宝上海可能遇到的市场条件或未来表现。本文中的信息是基于当前的市场情况, 这很有可能因随后的市场事件或其他原因而发生变化, 本文内容可能因此未反映最新情况,荷宝上海不负责更新本文, 或对本文中不准确或遗漏之信息进行纠正。