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High Meadows Institute

ESG Integration in Investment Management: Myths and Realities

Until very recently, there has been considerable doubt, especially among mainstream investors, that companies with high ESG “scores” could succeed in producing competitive returns for their shareholders. Studies of the last three decades of the 20th century have reported that what was then known as Socially Responsible Investing (or SRI)—an investment approach that worked mainly by screening out the companies with the lowest ESG scores or entire industries such as tobacco and alcohol—produced shareholder returns that were often below market averages. And this finding has in turn contributed to the widespread perception that corporate efforts to address environmental and social…

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Finding the Signal in the Noise

The practice of integrating ESG factors into investment decisions is growing, but are asset managers and owners making the right decisions about which factors to focus on? The answer is, not often enough, despite research by George Serafeim and others at Harvard Business School which concluded that company financial performance is only improved if a given ESG factor or issue is relevant, or material, to that company in its industry peer group. As a growing number of asset owners and asset managers are interested in integrating material ESG factors into their investment decisions. Those not yet involved in the practice…

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