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Principles for Responsible Investment

Principles for Responsible Investment

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Since: 10.07.2014

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PRI publishes study of financial performance of ESG integration in US investing

21.02.2018 Share

The PRI has published a study of financial performance of ESG integration in US investing.

The study has been prepared for investment professionals (particularly pension plan trustees and investment consultants) interested in the benefits of ESG integration to investment outcomes in the US.

According to a CFA study, a proven link between ESG factors and financial performance is among the top motivating reasons for US investors to adopt ESG integration in their investment practice.

The paper draws on three empirical studies: a PRI proprietary study using MSCI ESG Research analytics, a BofA Merrill Lynch Global Research study in equity investment and a Calvert Research and Management study in fixed income investment. It offers insight on the following questions:
  • Does a portfolio that is optimized by ESG performance have an alpha-generating advantage over a broad index?
  • What does an ESG momentum (trending scores) versus tilt (absolute point-in-time scores) strategy convey about alpha generation?
  • How does the US fare in terms of alpha opportunity from ESG integration versus other regions?
  • Is ESG integration effective in both equities and fixed income?
  • Which of the sustainability pillars present the greatest alpha opportunity?
  • How does ESG efficacy vary across market capitalization and credit quality distributions?
  • Do certain industries present a better alpha opportunity from ESG integration than others?
The three empirical studies collectively demonstrate that ESG factors are materially linked to both equities and fixed income performance. The three studies also provide a multi-dimensional view of the varying degrees of ESG efficacy across geographic regions, sustainability pillars, market capitalization and credit quality rankings, as well as industry classifications. The results suggest that attractive investment opportunities can be capitalized on in US companies through the use of ESG integration, with certain sustainability factors, fundamental profiles and sectors have greater financial materiality than others.

The commercial case for analysis on ESG issues is growing rapidly in the US. Today, the fiduciary risk for investors is not in the consideration of ESG issues, as was once considered the case, but in the lack of consideration of ESG issues. The study should provide the guidance, and ultimately the confidence for US investors who are still doing their due diligence on ESG integration, to fully recognize its value and capitalize on opportunities in the US.

Commenting on the paper, Judy Mares, former Deputy Assistant Secretary for Policy, at the Employee Benefits Security Administration, Department of Labor, said “The data shows that incorporating ESG factors into investment decision making is on the rise. Some factors can and have been material to investor analysis. That was a clear influence on the Department of Labor’s revision of their ESG guidance that recognized that ESG factors can be material and an appropriate component of a fiduciary’s analysis and decision making.”

Bronwyn Bailey, Ph.D., VP, Research and Investor Relations, American Investment Council, said “ESG integration is valuable to private equity and all investment strategies because it helps to create more long-term value for companies. Companies that adhere to higher environmental, social, and governance standards have more enduring business models, and they also provide evidence to asset allocators that their investments can do well by doing good.”

The PRI will be presenting the paper to US consultants and their clients as part of a series of events across the US. The PRI will continue to monitor trends and growth in ESG analysis and regularly publishes evidence and case studies on ESG issues. Feedback on this paper can be sent to