Esg And financial performance

This report summarises findings from over 1,000 studies (2015–2020) examining links between environmental, social and governance (ESG) factors and financial performance. Conducted by the NYU Stern Center for Sustainable Business and Rockefeller Asset Management (a division of Rockefeller Capital Management), it finds that most studies show positive or neutral relationships between ESG and financial outcomes.

Among corporate-focused research, 58% reported positive results for metrics such as return on equity (ROE), return on assets (ROA) and stock performance, while 13% were neutral and only 8% negative. For investor-focused studies, 59% found similar or better risk-adjusted performance compared with conventional approaches, and only 14% showed negative outcomes. Studies on low-carbon and climate strategies also largely reported positive or neutral results.

Challenges in ESG research

The report highlights persistent challenges in ESG research. Definitions of sustainability vary widely, creating inconsistent results. Many studies fail to distinguish between material and immaterial ESG factors or between ESG leaders and improvers. Around 40% rely on differing third-party ESG data, leading to inconsistency in measurement.

Additionally, studies often merge distinct ESG strategies such as integration, screening, and impact investing, despite differing risk-return implications. These variations make comparisons difficult and can obscure meaningful insights.

The results indicate an encouraging relationship between ESG and financial performance

The analysis confirms generally positive correlations between ESG and financial performance. A meta-meta-analysis of 13 corporate studies (covering 1,272 unique studies) found consistent positive results, while investor studies showed returns similar to conventional investments.

Social science theories such as stakeholder theory, shared value and legitimacy theory frequently underpin the research. Studies using these frameworks were more likely to report positive findings, suggesting the importance of stakeholder and resource-based perspectives in understanding ESG’s financial impact.

Six key takeaways

Improved performance over time: Long-term ESG strategies are 76% more likely to produce positive or neutral outcomes. Evidence indicates stronger returns for firms with sustained ESG commitments.

ESG integration performs best: ESG integration tends to outperform negative screening. Firms improving on material ESG issues (“improvers”) show greater alpha potential than static “leaders”.

Downside protection: ESG strategies appear to cushion portfolios during crises. During the 2008 financial crash and COVID-19 downturn, most ESG funds and indices outperformed conventional benchmarks.

Sustainability drives innovation and efficiency: Corporate sustainability can enhance returns through improved innovation, operational efficiency, and risk management. All studies assessing innovation reported positive effects, and 59% linked operational efficiency to better financial outcomes.

Low-carbon strategies enhance returns: Companies and investors pursuing decarbonisation generally perform better. Studies show annual abnormal returns of 3.5–5.4% for carbon-efficient firms, and indices of renewable or efficiency-focused companies outperformed traditional ones.

Disclosure alone is limited: Only 26% of studies found a positive relationship between ESG disclosure and financial outcomes, compared with 53% for performance-based measures. Reporting without substantive ESG action may even reduce firm value.

Conclusion

The report concludes that managing material ESG issues generally enhances long-term financial performance and reduces downside risk. However, further research is needed to explain causal mechanisms such as innovation, employee engagement, and operational efficiency.

Future work should distinguish between corporate and investor perspectives, clarify ESG strategy definitions, and focus on material topics like climate change to improve comparability and insight in sustainable finance research