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Sustainable investment, show me the evidence

Risk & Analytics|Investments
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February 21, 2018

Asset owners who have recently been introduced to the concept of sustainable investment often ask: “What’s the evidence?”. This paper outlines how appropriate management of ESG factors can lead to improved risk and return outcomes.

We are often asked by asset owners who have recently been introduced to the concept of sustainable investment: “What’s the evidence?”

This is not an unusual question when we operate in an industry where numbers and quantitative assessments often dominate. Ideas struggle to gain acceptance without empirical proof. Sustainable investment and Environmental, Social and Governance (ESG) factors are no different – and the high burden of proof many investors have imposed has contributed to the slow integration of this area within asset owner portfolios.

ESG has historically been associated with largely non-financial concerns, and is still sometimes viewed as a cost rather than another lens with which to assess risk and return. Changing this mindset is no easy task. In our paper, "Sustainable investment, show me the evidence", we provide a sample of the academic evidence which demonstrates the value of doing so. The studies and meta-studies referenced at the end of this paper show reduced cost of equity, better stock performance and lower fixed-income spreads as examples of how appropriate management of ESG factors can lead to improved risk and return outcomes. Further studies also demonstrate the value of effective stewardship, linking corporate engagement with improved investment returns.

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