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Creating shareholder value through ESG engagement

Author

Listed:
  • Benoît Mercereau

    (Arvella Investments)

  • Lionel Melin

    (Arvella Investments)

  • Maria Margarita Lugo

    (Arvella Investments)

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.

Suggested Citation

  • Benoît Mercereau & Lionel Melin & Maria Margarita Lugo, 2022. "Creating shareholder value through ESG engagement," Journal of Asset Management, Palgrave Macmillan, vol. 23(7), pages 550-566, December.
    • Handle: RePEc:pal:assmgt:v:23:y:2022:i:7:d:10.1057_s41260-022-00270-4
    DOI: 10.1057/s41260-022-00270-4
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    3. Jonas Zink, 2024. "Which investors support the transition toward a low-carbon economy? Exit and Voice in mutual funds," Journal of Asset Management, Palgrave Macmillan, vol. 25(2), pages 147-161, March.

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