The NYU Stern Center for Sustainable Business, partnering with Rockefeller Asset Management, announced the findings from a new meta-study examining the relationship between environmental, social and corporate governance (ESG) activities at organizations and their financial performance in more than 1,000 research papers over the last five years.
The authors surveyed 1,141 peer-reviewed papers and 27 meta-reviews (based on ~1,400 underlying studies) published between 2015-2020; select papers are available through the Center’s new ROSI™ Research Database*. Six key takeaways from the research indicate:
- Improved financial performance due to ESG becomes more noticeable over longer time horizons.
- ESG integration as an investment strategy performs better than negative screening approaches.
- ESG investing provides downside protection, especially during a social or economic crisis.
- Sustainability initiatives at corporations appear to drive better financial performance due to mediating factors such as improved risk management and more innovation.
- Managing for a low-carbon future improves financial performance.
- ESG disclosure without an accompanying strategy does not drive financial performance.
Dividing articles into those focused on corporate financial performance and those focused on investment performance, the researchers found a positive relationship between ESG and financial performance in 58% of the corporate studies focused on operational metrics or stock price with 13% showing neutral impact, 21% mixed results and only 8% showing a negative relationship. For investment studies, typically focused on risk-adjusted attributes, 59% showed similar or better performance relative to conventional investment approaches while only 14% found negative results.
“We’ve seen an exponential increase in ESG and impact investing as evidence builds that business strategy focused on material ESG issues goes hand-in-hand with high-quality management teams and improved returns,” notes Professor Tensie Whelan, Founding Director of NYU Stern’s Center for Sustainable Business. “With Rockefeller Asset Management’s generous support, we were able to complete the first large-scale analysis on these critical topics in nearly five years. We are hopeful that the findings from our research will help individual investors and companies alike understand that sustainable business is good business.”
“Our analysis demonstrates the benefits of incorporating ESG information into an investment process for long-term investors managing through varying economic cycles toward a low-carbon future. This has been a valuable and insightful collaboration with NYU Stern’s Center for Sustainable Business,” adds NYU Stern alumnus Casey Clark (MBA ’17), CFA, Managing Director, Global Head of ESG Investments & Portfolio Manager at Rockefeller Asset Management. “I believe that research in the years ahead will increasingly focus on the risk and return relationship between ESG leaders, ESG improvers and thematic strategies. That is the future of sustainable investing.”
“This research is especially timely in light of the SEC under President Biden pushing for disclosure of ESG and climate change risk,” explains Ulrich Atz, Research Fellow at the NYU Stern Center for Sustainable Business. “Our findings can serve as a key resource for the SEC’s new chairperson as s/he shapes future regulations.”
*ROSI™ Research Database Launches
Established by NYU Stern’s Center for Sustainable Business (CSB), the newly released ROSI™ Research Database was created as an ongoing reference tool for CSB’s ROSI™ (Return on Sustainability Investment) methodology, which enables companies and investors to assess the relationship between sustainability initiatives and financial value. More than 300 papers are now available in the ROSI™ Research Database, which can be filtered based on attributes such as industry type, publication and region.
Download the full report (pdf)
