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Evidence shows that ESG engagement creates value for shareholders

Cass professor leads on new ESG report commissioned by PRI.

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A new report ‘How ESG Engagement Creates Value for Investors and Companies’, shows there is clear evidence that engagement by investors with companies on environmental, social and governance (ESG) issues can create shareholder value. However, despite the growth in engagement activity by investors, exactly how ESG engagement creates value is poorly understood.

The research was commissioned by The Principles of Responsible Investment (PRI) and led by Professor Jean-Pascal Gond at Cass Business School.

Key findings

The research team carried out 36 interviews with representatives of large listed companies to obtain a corporate perspective on engagement. They combined this data with two earlier studies of engagement practices involving 66 institutional investors.

The interviews highlighted three ESG engagement dynamics that create distinct types of value for companies and investors:

  1. Communicative dynamics – engagement enables the exchange of information between corporations and investors, creating ‘communicative value’.
  2. Learning dynamics – engagement helps to produce and diffuse new ESG knowledge amongst companies and investors, creating ‘learning value’.
  3. Political dynamics – engagement facilitates diverse internal and external relationships for companies and investors, creating ‘political value’.

The report reveals divergent corporate and investor views on the benefits and challenges of individual versus collective forms of engagement. It also identifies specific corporate and investor enablers and barriers to engagement success and sets out recommendations for companies and investors to improve the success of engagement.

Fiona Reynolds, CEO of PRI said: "At the PRI, we believe all investors need to be active owners, which includes engaging with companies on ESG issues. We also know that engagement can have a positive impact on corporate performance; however, more work needs to be carried out on this issue to enable investors to set clear priorities and objectives when it comes to corporate engagement."

The full report is available on PRI's website.

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