Why and How Investors Use ESG Information: Evidence from a Global Survey

by Amir Amel-Zadeh and George Serafeim

Overview — Survey data from more than 400 senior investment professionals provides insights into why and how investors use environmental, social, and governance (ESG) information as well as the challenges in using this information. This study also documents what investors believe will be important ESG styles in the future.

Author Abstract

Using survey data from a sample of senior investment professionals from mainstream (i.e., not SRI funds) investment organizations, we provide insights into why and how investors use reported environmental, social, and governance (ESG) information. The primary reason survey respondents consider ESG information in investment decisions is because they consider it financially material to investment performance. ESG information is perceived to provide information primarily about risk rather than a company’s competitive positioning. There is no one size fits all, with the financial materiality of different ESG issues varying across sectors. Lack of comparability due to the lack of reporting standards is the primary impediment to the use of ESG information. Most frequently, the information is used to screen companies, with the most often used method being negative screening. However, negative screening is perceived as the least beneficial investment while full integration into stock valuation and positive screening are considered more beneficial. Respondents expect negative screening to be used less in the future, while positive screening and active ownership to be used more.