Creating shareholder value through ESG engagement

Benoît Mercereau (), Lionel Melin and Maria Margarita Lugo
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Benoît Mercereau: Arvella Investments
Lionel Melin: Arvella Investments
Maria Margarita Lugo: Arvella Investments

Journal of Asset Management, 2022, vol. 23, issue 7, No 2, 550-566

Abstract: Abstract Improving ESG can boost investment returns. The reason is simple: better ESG means healthier firms. Healthier firms trade at higher prices. Hence, improving ESG can boost firm valuation—and investment returns. We formalize this intuition. We estimate how eight key E, S, and G variables influence firm valuation. Our data cover over 2200 firms globally. These variables have a significant impact, which can vary across sectors. Enhancing ESG can unlock significant shareholder value. For example, firms adopting top decile practices across all eight variables would boost their equity valuation by 35% on average. Which ESG improvement(s) can boost share price mostly depends on firms. More than half the gains come from just one or two ESG variables. Our research allows identify such improvement(s) for each firm, and hence prioritize ESG engagement. Focusing on creating shareholder value should prove persuasive with firms, creating a virtuous circle between impact and returns.

Keywords: ESG; Global equities; Valuation; Climate change (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1057/s41260-022-00270-4

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