ESG and Global Investor Returns Study

ESGandGlobalInvestorReturns Study September2023 Table of Contents Introduction................................................................................................................................................3Background................................................................................................................................................6ESG and Related Terminology..............................................................................................................6A Brief History............................................................................................................................................9Overview of ESG Investing and Future Trends..............................................................................14Is Investment in Sustainability Material?.........................................................................................14Financial Reporting and Regulatory Trends..................................................................................15Rise in Regulatory Enforcement and Litigation............................................................................21Need for Attestation Will Increase...................................................................................................21What does this mean for Investors and Other Stakeholders?.................................................22Academic Research and Sustainability............................................................................................25Corporate Manager View.....................................................................................................................26For the Asset Manager.........................................................................................................................30ESG and Global Investment Returns Study Results......................................................................34Methodology Overview........................................................................................................................34Study Results–Highlights..................................................................................................................40Global Results by Rating and Industry............................................................................................43Highlights by Geographic Region.....................................................................................................50Future Research.....................................................................................................................................57Appendix 1: Study Methodology.......................................................................................................59Appendix 2: Countries/Markets Included in the Study.................................................................99References.............................................................................................................................................100Abbreviations........................................................................................................................................102Acknowledgments...............................................................................................................................103Kroll’s ESG Advisory and Technology Solutions..........................................................................104 Introduction Krollis pleased to presentourinaugural ESG and Global Investor Returns Study1,2Our studyexamines,globally,the relationship between historical returns of publicly traded companies and their ESG ratings.Ourgoalwas to determine whether companies with better ESG ratings outperformthosewith worseratings. Asthe relevance ofESG investinghas increased for individualinvestors,assetmanagers, corporations,regulators and other stakeholders, so has the confusion and lack of clarityaboutthe role of ESG inevaluating investment decisions.The cost of undertaking such strategies, or simply the disagreement withESG principles, had led to a politization of ESG investing. Yet, ESG investing is simply trying to considerrisks and opportunities that may arise from various environmental, social or governance trends. Investorslook at all kinds ofrisks and opportunities as part of their investment decision-making, with ESG factorsbeing just another facet of that evaluation process.Based onglobal regulatory and financial reportingdevelopments andinvestmentallocation trends,ESGinvesting is likely to remain an importantdriver ofinvestment decisions. To address many of the questions raised by ESG investing, we believea natural starting pointis aquantitative approachthat comparesstock market return datawith ESG companyratings. Thisallows ustodeterminewhether arelationship exists between ESG ratings and company returns.Our study relies onESG company ratings published by MSCI.3 Our study shows that companies with