How do ESG investments affect financial performance? A meta-analysis

Abstract

The relationship between environmental, social, and governance (ESG) investing and financial performance receives a great deal of attention in research literature. Previous studies mostly find that environmental performance improves financial performance. However, some studies report an insignificant, neutral, or even negative relationship. We conduct a meta-analysis of 55 studies over a 50-year period that confirms a positive relationship between ESG and financial performance. As most previous studies often focus on one of the ESG dimensions, like Corporate Environmental Performance (CEP) or Corporate Social Responsibility (CSR), this study analyses ESG as a holistic concept. In addition, we specifically study the differences before and after the implementation of ESG investment as an own term in 2005. After this period, stricter regulations and benchmarks for investment, like the EU Taxonomy have been implemented. The analysis reveals that the relationship between ESG investment and financial performance is significantly influenced by a corporation perspective, time of study and regional differences. Surprisingly, the results indicate that studies before 2005 report a stronger relationship between ESG and financial performance. After discussing the findings, this thesis tries to answer the problem statement: “How do ESG investments affect financial performance?”