A Survey of the Academic Literature on ESG/SRI Performance

Does ESG/SRI investing lead to higher, lower or about-the-same risk-adjusted returns? Abundant academic literature on the topic has emerged in the last eight years, but there’s still no consensus about whether responsible investing is a good bet for your clients.

If you’re reading this article, then you already know ESG/SRI investing is one of the biggest topics in the investment management industry. Whether you believe it is rapidly becoming part of the global investment mainstream or not, you surely noticed that it’s something advisors need to be able to understand and articulate.

Most of the world’s largest asset managers are now allocating funds to sustainable investing. But should advisors do the same?

In attempt to answer this question, I looked at dozens of studies from academic literature and industry research experts, making sure to review its position on the topic.

I reviewed the findings from studies dating back to 2010, and in summarizing them I matched them to one of three categories:

  • Category 1: ESG/SRI investment strategies underperform on a risk-adjusted basis
  • Category 2: ESG/SRI investment strategies outperform on a risk-adjusted basis
  • Category 3: Investors don’t sacrifice performance with ESG/SRI strategies

After hours reviewing dozens of studies, I only knew one thing for sure – in just the last eight years, a striking number of research papers have been published about ESG/SRI.

I limited my analysis to academic studies that appeared in SSRN and excluded those that were published by asset managers or others in the investment industry (since those are likely to favor the investment strategy of the company sponsoring the research). More importantly, I looked only at research that focused on risk-adjusted returns for ESG/SRI products available to retail investors (i.e., mutual funds and ETTs). That means I excluded a substantial body of research that looked at, for example, whether individual stock performance benefits from ESG/SRI mandates or whether institutional investors can benefit from so-called impact investing.

Given the broad scope of this literature, I’ve surely overlooked some studies. If you know of one, please email us and I’ll update this article.