The largest-ever meta analysis of academic studies on investment guided by ESG principles concludes that the business case for ESG investing is ‘empirically very well-founded’.
The analysis of more than 2,200 academic studies and more than 60 review studies published since the early 1970s concludes that investment based on ESG criteria has a positive effect on corporate financial performance (CPF) that is ‘stable over time’.
‘Through analyzing what is by far the most comprehensive dataset on existing ESG-CFP research to date, we find that the business case for ESG investing is empirically well founded,’ the study says. ‘Investing in ESG pays financially. Furthermore, we highlight that the positive ESG impact on CFP is stable over time.’
The authors, including Timo Busch of the University of Hamburg, Alexander Bassen of the University of Reading and Gunnar Friede of Deutsche Asset and Wealth Management, say that 90 percent of the studies they reviewed showed a non-negative relationship between ESG investment and corporate financial performance. They also say the ‘large majority’ report positive findings.
The meta analysis, which covered academic studies including working papers, published journal papers and studies published for a commercial audience, also looked into whether any of the subcategories of ESG – the E, S or G – had a proportionately larger effect on corporate financial performance. The authors, however, report a ‘relatively even positive correlation’ between the three.
‘Based on this exhaustive review effort, our main conclusion is: the orientation toward long-term responsible investing should be important for all kinds of rational investors in order to fulfill their fiduciary duties and may better align investors’ interests with the broader objectives of society,’ the study concludes.
The authors called for further research on the effects of individual ESG criterion on investors’ portfolios.
