NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, January 18, 2017

In 2016, we stated that environmental, social and governance (ESG) investing was at an inflection point and would move centre stage for many investors.

Indeed, an October 2015 ruling by the US Labor Department, which permitted the managers of pension funds and 401(k) plans to evaluate ESG factors as a part of their investment process, represented a key turning point for sustainable investing.

While investors have seen ESG criteria as increasingly important for reasons of best practice, or because they or their clients care about these issues, the evidence that incorporating an ESG perspective improves returns has been mixed.

Our own internal study using external ratings on companies didn’t find any evidence of improvement of returns from buying the best ESG companies, but at the same time we found that excluding the worst did not detract from performance.