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By David GordonDirector, Eaton Vance Advisor Institute

Researchers at NYU Stern School of Business performed a variety of analyses on more than 1,000 research papers on responsible investing published between 2015 and 2020.1 Their as-yet unpublished paper drew two general conclusions (p. 34):

  • "Sustainability is positively associated with corporate financial performance"
  • "Returns from ESG investing are on average indistinguishable from conventional investments"

This research suggests that there is no performance penalty for investors who invest responsibly, and that companies that incorporate ESG and sustainability practices experience benefits.

Though the preponderance of recent research is favorable to responsible investing, it is important to note that correlation does not prove causation. Sustainability is "associated" with better corporate financial performance; it does not necessarily cause better corporate financial performance.

Advisors interested in discussing responsible investing with clients can use the study's findings as conversation starters:

  • "Research shows that ESG disclosures alone are insufficient for good decision-making. We need to look deeper or hire managers who will look deeper."
  • "Investing responsibly requires patience. Research shows that the connection between ESG and improved financial performance is easier to see over longer time horizons."
  • "Sustainable business practices really boil down to proactively addressing risks — regulation risk, litigation risk, reputation risk and so on."
  • "While screening out companies we don't want to own can be a good start, integrating ESG into the selection of companies we do own may provide better results over time."
  • "Research suggests that the best benefit to responsible investing, at least for the investor, may be downside protection during social or economic crises."

This research can support your conversations with clients when discussing the association of ESG factors and improved corporate financial performance. 

Bottom line: Sustainable business practices can help improve company performance and investing responsibly imposes no performance penalty for investors.