ESG Research Update

NRI report into what’s on offer in ESG

Nomura Research Institute has published a report, What will it take to expand ESG investing?, looking into the risk and return profiles of ESG products, rather than the previous takeup being driven by conviction. The authors report on shortfall in the way current ESG ratings measure performance, with NRI urging the industry into a rethink.

Academic research into ESG ratings and investment performance has seen conflicted findings, with investors in two groups: those that believe high ESG ratings on stocks are more robust against market shocks, and those who think ESG strategies don’t deliver enough alpha.

There is a third group, however, explains the report, with those investors who are more comfortable with high-ESG stocks than low-ESG stocks as long as the risk/return profiles don’t differ materially. This third group will not sacrifice returns in favour of ESG objectives. This heats up the situation in terms of fund providers offering the best of both worlds.