Environmental Social and Governance (ESG)

Environmental Social and Governance (ESG)

Environmental, Social and Governance (ESG)

Institutional investors increasingly take environmental, social and governance (ESG) issues into account when making investments in portfolio firms. This can be in the form of direct shareholder engagement or through screening, whereby firms with certain ESG characteristics end up on positive or negative (exclusion) investment lists. ESG investment can also imply the divestment of portfolio firms. As pointed out by Larry Fink, Blackrock Chairman and CEO, in his 2017 letter to the CEOs of portfolio companies, the underlying investment idea is that “Environmental, Social and Governance (ESG) factors […] can provide essential insights into management effectiveness and thus a company's long-term prospects.” 

While many institutional investors started to incorporate G topics, such as board structure or executive compensation, several decades ago, the integration of E&S issues into the investment process is a more recent phenomenon. E topics include climate change, waste, pollution and water rights, while S issues may be related to human rights issues, weapons, tobacco, and labour standards.

ESG investing is set to have a major impact on many portfolio firms. By 2018, more than 2,000 signatories representing over US$80 trillion of assets had signed the UN Principles for Responsible Investment (PRI), a document that commits its signers to consider ESG factors when making investment decisions.

An important driver behind the increasing importance of ESG investment is academic research indicating that incorporating ESG factors into the investment process can lead to higher investment returns and lower risks. Individuals affiliated with ECGI have made several important contributions to this research, some of which is listed on this theme page.

ECGI will continue to track the progress of research in this area and related developments. Additional resources will be made available through these pages.

Queries, suggested inclusions, and project funding proposals should be directed to Prof. Zacharias Sautner (Z.Sautner@fs.de).



Academic Papers:

Policy papers, reports, viewpoints and speeches:

Blog posts: 





Prof. Zacharias Sautner


Private Benefits and Corporate Investment and Financing Decisions: The Case of Corporate Philanthropy

We find that corporate giving as a private benefit of control distorts investment and financing decisions, results supporting Jensen’s (1986) free cash flow theory. These investment distortions reduce shareholder wealth, especially in cash-...Read more

Ronald Masulis
05 April 2019

Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows

Examining a shock to the salience of the sustainability of the US mutual fund market, we present causal evidence that investors marketwide value sustainability. Being categorized as low sustainability resulted in net outflows of more than $12...Read more

Samuel M. Hartzmark
Abigail B. Sussman
18 July 2018

The relationship between public listing, context, multi-nationality and internal CSR

Are MNEs more socially responsible, and where is this more likely to occur? Are rms less responsible in emerging or transitional economies, and what impact does the dominant national corporate governance regime have? We explore the association...Read more

Salim Chahine
Marc Goergen
10 December 2017

The Agency Costs of Activism: Information Leakage, Thwarted Majorities, and the Public Morality

Few doubt that hedge fund activism has radically changed corporate governance in the United States -- for better or for worse. Proponents see activists as desirable agents of change who intentionally invest in underperforming
companies to...Read more

John Coffee
22 November 2017

Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis

We study the extent to which a firm's social capital, as measured by the intensity of a firm's corporate social responsibility (CSR) activities, affects firm performance during the 2008-2009 financial crisis. We find that high-CSR firms have...Read more

Henri Servaes
01 February 2015