ESG and Financial Performance Positively Correlated, NYU Study Finds

A new study from the NYU Stern Center for Sustainable Business and Rockefeller Asset Management has found that ESG has a positive impact on a company’s financial performance.

In an examination of peer-reviewed studies, a positive relationship between ESG and financial results was observed in 58 percent of the studies. 13 percent suggested a neutral impact, 21 percent mixed, and 8 percent found a negative correlation.

Those figures are even more promising when climate change as part of ESG was the focus of the studies, with positive or neutral relationships observed in 86 percent of corporate studies and 65 percent of investment studies.

While ESG performance doesn’t always lead to enhanced financial performance, the study suggests the two are often closely linked, and even more significantly, the costs of positive ESG performance does not weigh down on profitability. The tendency for investors to regard financial outcomes and environmental, social, and governance outcomes through an either/or lens appears to be unfounded.

The implications are profound: investors need assume no trade off between financial and ESG returns over the long-term and companies need to take their ESG responsibilities seriously — for their bottom line, if for no other reason.

The researchers identified six key conclusions from the large meta-study:

• ESG’s contribution to improved financial performance becomes more obvious over time
• Integrating ESG into an investment strategy outperforms negative screening approaches
• ESG investing can protect investors to the downside, especially during periods of turmoil
• A commitment to ESG factors appears to position companies with enhanced risk management systems and increased innovation, which drive better financial returns
• Companies that are managed on the premise of having to carve out a low-carbon future perform better financially
• ESG disclosure alone, without an actual ESG strategy, does not drive financial performance (possibly indicating disclosures are being made by companies lacking adequate ESG strategies)

Havuta’s solution uses blockchain technology to support impact data collection, offering customers a proof-of-impact mechanism to verify their non-financial impact initiatives — meaning ESG disclosures must be backed by actual initiatives and impact.

The study, undertaken from 2015 to 2020, strongly links ESG performance to financial performance. The link is something investment managers and investors need to be aware of.

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