Oxford Saïd research demonstrates the increasing influence of Environmental, Social and Governance (ESG) ratings.
New research has found that wealthy private investors are more likely to invest in companies with high sustainability ratings. Companies with a good sustainability rating received 15% more investment per month over the three-year period 2016-2019, compared to those with a low rating.
While there is a growing body of research into the investment preferences of institutional investors with respect to sustainability ratings, the researchers believe they are among the first to study how private investors use this data to make their decisions.
The research, conducted by Associate Professor Amir Amel-Zadeh at Saïd Business School (pictured), University of Oxford and Professors Mary Pieterse-Bloem and Rik Lustermans at the Erasmus School of Economics, used anonymised data from ABN AMRO, Europe’s third largest private bank. They explored how wealthy private investors organise their portfolios according to the bank’s sustainability scores of individual companies and adjust their investments as these scores changed over a three-year period. The researchers chose to focus on wealthy households due to their disproportionately large impact on asset demand compared to the average household.
ABN AMRO’s sustainability scores consist of ESG ratings that are awarded to companies by a ratings agency, while any controversies in the company’s history are also factored in. If the scores improve, the researchers found that investors react by increasing their investment, while a deteriorating score corresponds with decreasing investments.
The authors state: ‘In absolute terms, we document about €4.4 million per month in incremental investment flows into assets with high sustainability ratings compared to those with low sustainability ratings.’
The research stemmed from Sustainable Investing Workshops run for ABN AMRO by Saïd Business School, designed to help the bank’s staff gain a deeper understanding of ESG and Impact Investing. The ongoing programme, taught by Amir Amel-Zadeh and Henry Gonzalez, has so far trained over 900 of the bank’s employees.
Amir Amel-Zadeh commented: ‘Our research shows that sustainability matters to investors and the importance of making them aware of the social and environmental impact of the companies they invest in. It also demonstrates the increasing influence of sustainability ratings agencies in directing capital towards more sustainable companies.’
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