Hermes Investment Management's seminal paper, ESG investing: does it just make you feel good, or is it actually good for your portfolio?, published in 2014, demonstrated the performance benefits of integrating environmental, social and governance (ESG) factors into investment decisions.
It found a statistically significant link between the quality of corporate governance and shareholder returns: companies with strong corporate oversight have tended to outperform their poorly governed competitors by an average of 30bps per month from 31 December 2008 to 31 December 2013. This allowed Hermes to systematically integrate the analysis of corporate governance into their stock-selection process. Two years later, they reaffirmed this finding in ESG investing: it still makes you feel good, it still makes you money.
Today, they revisit their study, updating their results to better understand how ESG factors have impacted shareholder
returns in the past 24 months. Contrary to their earlier
analysis, they found that the governance premium has
weakened and, for the first time, social factors now qualify
as statistically significant.
Date of publication: November 2018