Do Corporate Sustainability and Sustainable Finance Generate Better Financial Performance? A Review and Meta-analysis

Sustainability in business and ESG (environmental, social, and governance) in finance has entered the mainstream and has generated thousands of research articles that analyze its correlation with financial performance. We surveyed 1,141 primary peer-reviewed papers and 27 meta-reviews (based on ~1,400 underlying studies) published between 2015 and 2020. We reviewed three types of studies: corporate, investor, and thematic studies focused on climate change. Our data demonstrates that higher ESG is associated with better financial performance in corporate-type studies (60±7% of studies were positive). Investor-type studies, however, typically found that ESG investing is indistinguishable from conventional investing (with only one in three studies indicating superior performance). Climate change studies were rarely represented in top finance journals, but capture the frontier of corporate risk and ESG investment strategies. We found evidence that physical risk and decarbonization associate often with positive results in recent climate change studies¬ (N=58). We also employed a Bayesian random effects model to summarize 13 recent, quantitative meta-analyses (covering studies between 1976 and 2018), which estimated a partial correlation coefficient between ESG and financial performance of 0.05 to 0.13. We developed six propositions. Some are practical: ESG integration as a strategy seems to perform better than screening or divestment. Others are timely: ESG investing can provide benefits during a social or economic crisis