Reliable research by Oxford University and others confirms that good sustainability and ESG practices correlate with lower operating costs, better profitability and superior share price performance.
The financial sector has a major responsibility: to diligently manage people’s savings and retirement assets. Yet we believe that our fiduciary responsibility goes beyond that. As a financial institution, and in our role as investors, we can act as a lever and exert positive influence on the behaviour and management of the companies in which we invest for our clients. Equally, we can play a similar role in the regulatory framework in which we operate.
Sound stewardship equals sound results
Research has shown that companies that best manage their environmental and social impact and have better governance practices (ESG) are more profitable in the medium to long term. There are numerous studies on this topic conducted by academics and financial analysts.
On the one hand, the difficulty of opting for one result or another when examining how ESG factors contribute to investment fund performance comes from the vast array of variables and parameters, in particular regarding the periods considered. And on the other hand, we must separate the performance of individual securities selected by the fund manager on purely financial grounds from the performance that results from ESG credentials.
However, we can reiterate the premise that companies whose ESG performance is superior tend to be more profitable in the medium to long term.
A positive correlation between sustainability and economic profitability
Oxford University and Arabesque Partners conducted a meta-study entitled ‘From the stockholder to the stakeholder’ based on a detailed analysis of more than 200 different sources. This study confirmed that there is a conclusive correlation between good business practices in sustainability and economic profitability.
The first part of the study explored this principle from a strategic business management perspective. The results were remarkable: 88% of the 200 sources reviewed found that companies with solid sustainability practices have better operational performance, ultimately resulting in cash flows (see exhibit 1 below). In the second part, 80% of the sources reviewed showed that prudent sustainability practices have a positive influence on returns on investment.
Exhibit 1: Sustainability practices and business results
Finance’s role in driving a sustainable future
We believe that the viability of the current economic model is coming to an end. We need a new low-carbon model that is both efficient from an environmental point of view and socially inclusive.
We at BNP Paribas Asset Management are committed to using our financial and human capital to drive a more sustainable future to benefit our employees, our clients and society in general. We invite our financial sector counterparts to join us in our efforts, so that finance and the wider financial community can have a tangibly constructive impact on society and the environment, and act as a vector of positive change.
The author is a member of the European Commission’s Technical Expert Group on sustainable finance (TEG), which was set up to assist the EC in developing
- an EU classification system – the ‘taxonomy’ – to determine whether an economic activity is environmentally sustainable
- an EU Green Bond Standard
- benchmarks for low-carbon investment strategies
- guidance to improve corporate disclosure of climate-related information.