GHG Emissions, Finance  -  February 15, 2021

NYU finds ESG investments drive better financial performance

The NYU Stern Center for Sustainable Business, partnering with Rockefeller Asset Management, announced on Feb. 10 that their research indicates that ESG activities lead to better financial performance. 

“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,” professor Tensie Whelan, founding director of NYU Stern’s Center for Sustainable Business, said in a statement. “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.”

These findings from meta-study over the past five years examining the relationship between ESG activities at organizations and their financial performance result in six key takeaways:

1. Improved financial performance due to ESG becomes more noticeable over longer time horizons.
2. ESG integration as an investment strategy performs better than negative screening approaches. 
3. ESG investing provides downside protection, especially during a social or economic crisis.
4. Sustainability initiatives at corporations appear to drive better financial performance due to mediating factors such as improved risk management and more innovation.
5. Managing for a low-carbon future improves financial performance.
6. ESG disclosure without an accompanying strategy does not drive financial 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.

“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...,” NYU Stern alumnus Casey Clark (MBA ’17), CFA, managing director, global head of ESG investments & portfolio manager at Rockefeller Asset Management, said in the statement. “...That is the future of sustainable investing.”

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