The Smith School of Enterprise and the Environment at the University of Oxford and Arabesque Asset Management explored, in a report, more than 200 academic studies and sources dealing with sustainability, with a focus on the connection between corporate social responsibility and profitability. According to the report, ‘responsibility and profitability are not incompatible, but in fact wholly complementary’.

Three key findings regarding the relationship between sustainability and the cost of capital, operational performance, and stock price performance

Overall, from the studies reviewed, three highly important findings emerged:

• ‘90% of the cost of capital studies show that sound Environmental, Social and Governance (ESG) standards lower the cost of capital.’

• ‘88% of the studies show that solid ESG practices result in better operational performance.’

• ‘80% of the studies show that stock price performance is positively influenced by good sustainability practices.’

The report’s conclusions

• Managers will only gain from incorporating sustainability into their strategic decisions, as will institutional investors and trustees if they ‘require the inclusion of sustainability parameters into the overall investment process’.

• ‘Investors should be active owners and exert their influence on the management of their invested companies to improve the management of sustainability parameters that are most relevant to operational and investment performance.’

• Asset management companies will only gain from incorporating sustainability in investment procedures.

• ‘The future of active ownership will most likely be one where multiple stakeholders (such as individual investors and consumers) are involved in setting the agenda for the active ownership strategy of institutional investors.’

• Research is needed to ‘identify which sustainability parameters are the most relevant for operational
  performance and investment returns’.

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References:

This article was compiled using a report by The Smith School of Enterprise and the Environment at the University of Oxford and Arabesque Asset Management. For the sake of readability, we did not use brackets or ellipses but made sure that the extra or missing words did not change the report’s meaning. If you would like to quote these written sources from the original please revert to the link below:

http://www.smithschool.ox.ac.uk/research/

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