This briefing paper has been prepared for investment professionals (particularly trustees and investment consultants) interested in the benefits of ESG integration to investment outcomes in the US.
The latest in a series of papers on ESG in investment, it summarises the findings from three empirical studies on ESG materiality, and should provide guidance and confidence for US investors doing due diligence on ESG integration to fully recognize its value and capitalize on opportunities in the US.
The first is a proprietary study conducted by PRI, using MSCI ESG Research analytics and data, to evaluate the relative performance in active cumulative returns from portfolios with improving (i.e. momentum strategy) versus those with high (i.e. tilt strategy) ESG scores against a broad index across geographic regions. In addition, the PRI identified two other empirical studies, by BofA Merrill Lynch Global Research and Calvert Research and Management, which evaluate ESG materiality from equity and fixed income perspectives, respectively.
The three empirical studies collectively demonstrate that ESG factors are materially linked to both equities and fixed income performance. They 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 paper concludes that this suggests 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 having greater financial materiality than others.