This article by Lyxor ETF discusses that not only is there more and more of a trend to be more responsible when it comes to investing but that environmental, social and governance (ESG) investing doesn't need to come at the expense of returns. The problem we have is understanding how much of an influence ESG has as other factors will play a part in the overall share price performance. Can ESG actually influence valuation levels?
The study looks at MSCI's research to explore this more closely. The research explores the causality in more detail and more specifically whether ESG scores and stock performance directly cause the other. The model looks not only at companies who score well in on ESG but also those that have shown improvement/momentum.
The study gives evidence that change in ESG profile does have an impact on valuation levels and stock prices and ESG momentum may offer important new insight into how global markets price stocks.
Read the full analysis here.