Gaining a greater understanding of how ESG engagement creates value

In summary

There has been a significant rise, globally, in investors engaging with companies about environmental, social, and governance (ESG) issues, yet still little is known about how much value ESG engagement creates for them.

Professor Gond led a research team that identified insights into how institutional investors' dialogue with companies on ESG issues created different types of value for both parties.

The framework of guidance that resulted from the research has been adopted by the United Nations backed Principles for Responsible Investment (UN-PRI), an organisation comprising 3,000 members and a partner in this research, and has helped leading asset owners, investment firms, and ESG rating agencies transform their work practices.

What did we explore and how?

Professor Gond and his team were given unique access to qualitative data on engagement through their strategic partnerships with UN-PRI and Sustainalytics. Utilising knowledge management theory and qualitative methods, the team formed a unique perspective on how ESG creates different types of value for different stakeholders.

The team conducted 36 interviews with investors, and showed that engagement positively affects collaboration, stewardship, relationships, and knowledge creation, at both investors and investee companies, beyond generating abnormal financial returns.

As a result of interviews with 52 corporate actors and 66 investors, practical frameworks were formed that explain how investors and corporations capture value from their interactions during ESG engagement. Further interviews, and study of archival data helped determine which configurations of factors enhance the effectiveness of collective ESG engagement.

Benefits and influence of this research

For UN Sustainable Development Goals to be met, ESG issues must be considered and integrated by investors and corporations. This research raised awareness of the role, process, and value of ESG engagement, and its reach has been global.

The research team's industry reports have been co-produced through interactions with final users at workshops and major industry events attended by many ESG experts. Tools featured in these reports have been discussed during a plenary session of the 2017 PRI-in-Person conference.

Polling of delegates at this conference suggested that the research had helped shift attitudes towards the value of engagement.

Professor Gond and the team were subsequently invited to showcase their work at eight industry events attended by institutional investors, clients of engagement service providers, and multinational corporations, and presented their results at multiple investment firms.

Novel insights provided by the research has influenced and transformed ESG engagement practices at the UN-PRI, ESG engagement service providers, major asset management firms and their investee firms. In addition, organisations have been guided by the research in reshaping their training activities in order to better promote ESG engagement among their staff.