Date: May 2004There has been a general consensus that socially responsible investing (SRI) leads to inferior, rather than superior, performance. Using Innovest’s corporate ecoefficiency scores, the authors of this report provided evidence to the contrary. They composed two equity portfolios of different "eco-efficiency" ratings and found that over the period 1995-2003 the high-ranked portfolio gave substantially higher average returns than the low-ranked one. They showed that this difference could not be explained by differences in market sensitivity, investment style, or several other factors, and so concluded that the incremental benefits of SRI can be "substantial".

This presentation was given by Dr. Matthew Kiernan, Chief Executive, Innovest Strategic Value Advisor at the 2008 Tomorrow's Company Annual lecture. In it he powerfully brought together the arguments for the importance of recognising the link between the management of environmental, social and governance factors as an indicator of business performance, sustainable value creation and long-term investment returns. You can read Tony Manwaring's blog about the event here.

Innovest Strategic Value Advisors and the Environment Agency co-wrote a study in 2004 that provides a useful literature review of how responsible investment effects financial returns.  Furthermore there are fifteen case studies that look at how ESG policies have improved the profitability of companies ranging from Shell to Xstrata Plc.

Innovest Strategic Value Advisors carried out this analysis of how Environmental, Social and Governance (ESG) issues effect the financial performance of companies.  The literature review looks at 88 studies published between 1996 and 2006, concluding "that in 90% of cases there is evidence from the studies to suggest that good ESG performance can be linked to good financial performance, and vice versa".