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ForewordOmar SelimCEO, Arabesque Asset ManagementWe now live in a world where sustainability has entered mainstream. That much isevident from the fact that over 72% of S&P500 companies are reporting on sustainability,demonstrating a growing recognition of the strong interest expressed by investors.This report, entitled From the Stockholder to the Stakeholder, aims to give the interestedpractitioner an overview of the current research on ESG.In this enhanced meta-<strong>study</strong> we categorize more than 190 different sources. Within it, we finda remarkable correlation between diligent sustainability business practices and economicperformance. The first part of the report explores this thesis from a strategic managementperspective, with remarkable results: 88% of reviewed sources find that companieswith robust sustainability practices demonstrate better operational performance, whichultimately translates into cashflows. The second part of the report builds on this, where 80%of the reviewed studies demonstrate that prudent sustainability practices have a positiveinfluence on investment performance.This report ultimately demonstrates that responsibility and profitability are not incompatible,but in fact wholly complementary. When investors and asset owners replace the question“how much return?” with “how much sustainable return?”, then they have evolved from astockholder to a stakeholder.6
eport HighlightsSustainability is one of the most significant trends in financial marketsfor decades.This report represents the most comprehensive knowledge base onsustainability to date. It is based on more than 190 academic studies,industry reports, newspaper articles, and books.90% of the studies on the cost of capital show that sound sustainabilitystandards lower the cost of capital of companies.88% of the research shows that solid ESG practices result in betteroperational performance of firms.80% of the studies show that stock price performance of companies ispositively influenced by good sustainability practices.Based on the economic impact, it is in the best interest of investors andcorporate managers to incorporate sustainability considerations intotheir decision making processes.Active ownership allows investors to influence corporate behavior andbenefit from improvements in sustainable business practices.The future of sustainable investing is likely to be active ownership bymultiple stakeholder groups including investors and consumers.7
Page 1 and 2: How Sustainability Can Drive Financ
Page 3 and 4: “The report shows that shareholde
Page 5: Contents1. Introduction 82. A Busin
Page 9 and 10: 2. A Business Casefor CorporateSust
Page 11 and 12: The materiality of environmental, s
Page 13 and 14: Neglecting sustainability issues ca
Page 15 and 16: Case Study: British PetroleumBP’s
Page 17 and 18: Table 3: Overview of studies on the
Page 20 and 21: Studies also show that credit ratin
Page 23 and 24: Table 4: Empirical studies investig
Page 25 and 26: 4. Sustainabilityand OperationalPer
Page 27 and 28: firms with staggered or classified
Page 29 and 30: SummaryIn this section, we have ana
Page 31 and 32: Table 6: continuedStudy authorsTime
Page 33 and 34: 5. Sustainability andStock PricesTh
Page 35 and 36: are less ‘eco-efficient’, 149 a
Page 37 and 38: profile are acquired, the market re
Page 39 and 40: Table 7: Empirical studies investig
Page 41 and 42: more sustainable firms remain on th
Page 43 and 44: To date, active ownership has achie
Page 45 and 46: This clear economic case for sustai
Page 47 and 48: Bauer, R., Derwall, J., & Hann, D.
Page 49 and 50: Coca-Cola Company. (2013). Setting
Page 51 and 52: European Commission. (2013b). Commi
Page 53 and 54: Hart, S. L., & Ahuja, G. (1996). Do
Page 55 and 56: Margolis, J. D., & Walsh, J. P. (20
Page 57 and 58:
Servaes, H., & Tamayo, A. (2013). T
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