Determining the Financial Impact of ESG InvestingMeta-studies examining the relationship between environmental, social, and governance (ESG) and financial performance have a decades-long history. Almost all the articles they cover, however, were written before 2015. Those analyses found positive correlations between ESG performance and operational efficiencies, stock performance and lower cost of capital. Five years later, we have seen exponential growth in ESG and impact investing – due in large part to increasing evidence that business strategy focused on material ESG issues is synonymous with high-quality management teams and improved returns.
In collaboration with Rockefeller Asset Management and Casey Clark, CFA (MBA '17), the NYU Stern Center for Sustainable Business examine the relationship between ESG and financial performance in more than 1,000 research papers from 2015 – 2020.
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About the Research Methods
Because of the varying research frameworks, metrics and definitions, we decided to take a different approach than previous meta-analyses. We divided the articles into those focused on corporate financial performance (e.g. operating metrics such as ROE or ROA or stock performance for a company or group of companies) and those focused on investment performance (from the perspective of an investor, generally measures of alpha or metrics such as the Sharpe ratio on a portfolio of stocks), to determine if there was a difference in the findings. We also separately reviewed papers and articles focused on low carbon strategies tied to financial performance in order to understand financial performance implications through the lens of a single thematic issue.