The lack of industry consensus on whether ESG integration compromises on returns stems from the lack of uniformity across ESG ratings methodologies. In short – different ESG datasets result in differing financial outcomes. In this report, we summarize the academic studies, investment strategies and datasets that have been empirically proven to add alpha from ESG.

ESG AND FINANCIAL OUTCOMES

A lack of industry consensus on whether ESG can identify alpha generation opportunities stem from the lack of uniformity across data providers and investors in assessing governance and sustainability criteria. Differences in data sources, ratings methodology, and investment strategy, result in varying financial outcomes.

A paper published by the Journal of Sustainable Finance illustrates this fact by evaluating different studies that analyse ESG and financial performance. Of the 2k+ studies analysed, 63% found that ESG considerations have a positive impact on returns versus 8% of studies that found a negative return effect.