Introduction

The study investigates whether companies with higher ESG ratings generate superior equity returns. Analysing over 13,000 listed companies worldwide from 2013 to 2021, it finds that better ESG ratings are generally associated with higher stock returns. Portfolios of higher-rated companies consistently outperformed lower-rated peers across multiple geographies and industries.

Background

ESG terminology is often conflated with sustainability, socially responsible investment, and impact investing. While these overlap, ESG focuses on material risks and opportunities. ESG adoption has grown with climate, social and governance issues becoming mainstream in investment strategies. The report notes politicisation of ESG debates but frames ESG integration as an extension of risk analysis.

A brief history highlights how ESG evolved from ethical screening in the 1960s to mainstream financial relevance. Current trends include increasing flows into ESG funds and thematic strategies such as climate and biodiversity.

Overview of ESG investing and future trends

Global ESG assets under management have expanded rapidly, driven by institutional investor demand, regulatory developments, and client expectations. Thematic products, particularly climate-related funds, are seeing sustained growth. However, divergence in rating methodologies and inconsistent disclosure frameworks create challenges for comparability.

Future trends suggest greater standardisation of ESG reporting, increased regulatory scrutiny, and more emphasis on double materiality—considering both financial and societal impacts. The report notes growing investor focus on transition risks, biodiversity, and social equity, as well as the potential for new litigation risks linked to ESG claims.

Financial reporting and regulatory trends

Regulatory bodies are converging on mandatory climate- and sustainability-related disclosures. Enforcement and litigation risk are rising, while attestation requirements are expected to expand. These developments mean investors will need robust ESG data assurance.

Academic research and sustainability

Evidence remains mixed on whether ESG represents systematic risk. Some academics argue it affects cost of capital, while others see no clear relationship. The report positions its empirical work as filling this gap through large-scale return analysis.

Corporate manager view

Companies view ESG as important for stakeholder trust and long-term resilience. Yet they face challenges from inconsistent ratings and reporting demands.

For the asset manager

Asset managers increasingly integrate ESG to align with client expectations and regulatory requirements. However, they face difficulties from rating divergence and inconsistent definitions.

ESG and global investment returns study results

Methodology overview

The study constructed market-cap-weighted indexes based on MSCI ESG ratings across regions, countries, and industries, comparing cumulative returns over 2013–2021. The analysis covered four major regions (World, North America, Western Europe, Asia) and 12 markets including Australia, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Japan, South Korea, the UK and the US.

Study results – highlights

Globally, Leader-rated firms earned significantly higher cumulative total returns than Laggards, outperforming the MSCI ACWI IMI Index benchmark. However, results varied: in some sectors such as Energy and Health Care, Laggards outperformed Leaders, while in Materials, Financials, IT, Utilities and Real Estate, Leaders led performance.

Global results by rating and industry

Leader portfolios consistently outperformed across most industries. Yet results also showed mid-rated firms occasionally delivering stronger returns than Leaders, suggesting ESG integration is complex and industry-dependent.

Highlights by geographic region

In North America and Asia, AAA ratings were rare, with mid-tier ratings dominating. In Western Europe, CCC ratings were least common, and companies generally had stronger ESG profiles. Regional data show ESG Leaders often outperformed, though not universally.

Future research

The report proposes extending analysis to test whether results are driven by firm characteristics such as size, and whether observed trends are likely to persist beyond 2021.