Does Sustainability Generate Better Financial Performance? Review, Meta-analysis, and Propositions

(with Tracy Van Holt, Zoe Liu, and Chris Bruno), Journal of Sustainable Finance and Investment

Published

2022-08-19

ACCESS THE PAPER HERE, the pre-print version, the online appendix, and the replication package

Abstract

Sustainability in business and ESG (environmental, social, and governance) in finance have exploded in popularity among researchers and practitioners. We surveyed 1,141 primary peer-reviewed papers and 27 meta-reviews (based on ~1,400 underlying studies) published between 2015 and 2020. Aggregate conclusions from a sample suggest that the financial performance of ESG investing has on average been indistinguishable from conventional investing (with one in three studies indicating superior performance) – in contrast with research in the wider management literature as well as industry reports. Until recently top finance journals did not publish climate change related studies, yet these studies capture the frontier of corporate risk and ESG investment strategies. We developed three propositions: first, ESG integration as a strategy seems to perform better than screening or divestment; second, ESG investing provides asymmetric benefits, especially during a social or economic crisis; and third, decarbonization strategies can potentially capture a climate risk premium.

The bar chart shows four times two columns, split by corporate and investor studies, which illustrates the relative frequency a study reached a positive, mixed, neutral, or negative conclusion.

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