GLOBAL - Applying environmental, social and corporate governance (ESG) to your portfolio has a positive impact on performance, the United Nations and Mercer has found.
In a review of 20 academic studies on the subject, 10 revealed a positive relationship between ESG factors and performance, according to a report co-authored by the Asset Management Working Group of the United Nations Environment Program Finance Initiative (UNEP FI) and Mercer's responsible investment business.
Seven academics said there was no impact and three saw ESG influencing returns negatively. "The results varied in part due to factors such as differing research methods and short sample periods," Mercer explained in a statement.
Mercer's global head of responsible investment, Jane Ambachtsheer, explained the importance of ESG is growing.
"As society places increased emphasis on the importance of issues such as climate change, workplace safety and human rights, these factors will become arguably more relevant to company performance and investment returns, rather than less so," said Ambachtsheer.
Alex van der Velden, executive director of FairPensions, a UK based charity created in 2005 by Amnesty International and WWF, pointed out the importance of selecting managers with the right ESG skills in order to boost returns.
"Investors who are concerned abut their financial and fiduciary responsibilities should ensure that their policies and their asset managers are properly equipped to manage [ESG] issues."
The UNEP report was issued a week after FairPensions revealed the lack of disclosure concerning social and environmental issues among UK fund managers in a report.
In other news, the Local Authority Pension Fund Forum (LAPFF), representing funds with aggregate assets of £85bn (€122.4bn) has signed up to the UN principles of responsible investment (PRI).
"PRI has already had a significant impact in terms of encouraging both institutional investors and the service providers that work with them to think seriously about how they address responsible investment," said Darrell Pulk, chair of the LAPFF.
"We believe [the principles] can also provide a spur for the further development of LAPFF's approach to responsible investment."