ESG and Financial Performance

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In the context of our continuing applied research on the linkage between ESG standards and financial performance, the conclusions from a recent study by Axioma are noteworthy.

Companies with top ESG scores in the developed markets (ex US), the US and the emerging markets, outperformed their benchmarks over a recent 4 year period through March 2018.  Axioma notes that “increasing exposure to ESG rarely underperforms the markets, and often outperforms the market, especially during the last 4 years.” 

Though the study is limited to a  recent medium term, it dispels the notion that ESG performance does not contribute to financial outperformance relative to benchmarks.

The Axioma research paper, ESG’s Evolving Performance – First, Do No Harm, points out that ESG factors and their relative weights across E, S, and G categories, are often industry-specific.  These factors also significantly overlap and correlate with the traditional risk factors.  Axioma looked at the ESG factors that fell outside of the traditional risk factors, and the positive correlation with financial performance of such “excess” ESG factors.   Considerable variability across vendors providing ESG scores so caution is needed.

The above study  included public equity markets, some of the insights are relevant for private markets