The leaders of the finance industry have made the leap to adopting a wide range of changes to how and what they finance as well as leading ambitious initiatives to make an impact on the world’s most important issues. However, for ‘force for good’ to be an enduring endeavor, the leaders of financial institutions and the industry as a whole will need to survive not just the inevitable setbacks and risks that come with such dramatic change, but also ensure that this strategy delivers better risk-adjusted performance consistently and over time.

Currently, performing means delivering on the traditional measures of performance (profits and value creation), which therefore take a higher weighting to metrics related to broader stakeholder returns.

The finance industry as a whole will need to ensure that their strategy for ‘doing good’ delivers better performance along traditional measures of performance until shareholders and stakeholders align more broadly in society ... the evidence is that it does, and the more good, the higher the return Historically, there was a perception that pursing goals other than generating financial returns imposes a performance penalty, and therefore requires some form of subsidy (e.g., grants or capital with a lower-returns threshold) for them to compete with purely commercial pursuits. There is a growing body of evidence indicating that not only does this assumption not hold, but that the reverse may in fact be true: that incorporating ESG and sustainability into businesses may actually deliver measurably better performance over time.

This section examines the links between sustainability and performance from external studies and the ‘Force for Good’ Initiative data set to analyze whether doing good can survive the judgement of the market.


1. The Core Business Case – Large Body of Evidence Clearly Suggests that ESG Linked to Performance

With a growing number of institutions (in the financial sector and others) implementing ESG policies and systems and increasing interest from both retail and institutional investors in sustainable investing strategies, there is a growing body of analysis to see what the impact on financial results might be. A meta-analysis of 2,200 empirical studies, the largest such analysis to date, found a positive correlation between ESG and performance across asset classes, across geographies, and across each of the individual ESG factors (environmental, social, and governance) individually. The study concluded that business case for ESG investing is empirically well founded.”25 Many explanations for this correlation have been proposed and examined in detail, one of the most obvious ones being closely linked to finance industry, namely the cost of capital for an organization. As stated above, the most powerful source of impact of the industry is its allocation (and withholding) of capital. With the integration of ESG criteria into investment decisions increasingly common, ESG compliant companies are finding themselves better funded at a lower cost of capital than non-compliant peers, contributing to better corporate financial performance.

Figure 4.1: The Link Between ESG and Corporate Financial Performance (Meta-analysis of 2,220 Empirical Studies)

Further, the evidence from the ‘force for good’ data set indicates a positive correlation of returns with the level of ESG engagement. Considering the members of the banking sector, representing the largest subset of companies examined (with over 50% of the entities for whom performance data is available), there is a strong positive relationship between institutions return on assets and the intensity of ESG engagement, which includes the extent to which assets are ESG integrated, the extensiveness of ESG policies implemented, the level of industry collaboration, and the breadth of community and workforce engagement. Based on this analysis, not only do companies that do good do well, companies that do more good do even better. More data is required to confirm this.

Figure 4.2: Average Return on Assets Over Last 10 Years for Banks in Analysis


2. The Investing Case – ESG and Sustainability Investing Strategies Produce Better Returns

A number of studies suggest that ESG integration is linked to investment outperformance across a number of investing strategies, whether debt, equity, or indirect investing through funds. This has been one of the drivers behind the sharp increase in ESG and sustainability focused investment products over the last several years. Some of the notable findings are:

  1. ESG generates positive equity returns. High ESG scoring companies outperform low scoring ones in terms of stock price performance. A recent analysis that compared the performance of the highest and lowest ESG ranked companies in Europe between 2007 and 2019 found that the highest-ranking group outperformed the lowest by 4% annually or by 52% in total during this period.
  2. Figure 4.3 MSCI Overall ESG score: back tested highest scored (Q1) stocks performance relative to lowest scored (Q5) stocks (Europe)

  3. ESG generates positive fixed income returns. Another study examining a pool of over 5,000 bonds compared the returns of fixed income portfolios with high and low ESG rating corporate bonds over an eight-year period, finding a material uplift in the performance of bonds by high ESG rated issuers. The study found that: ‘Most portfolio pairs (high-ESG minus low-ESG portfolios) delivered a positive return, indicating a generally positive return premium for the “ESG factor” in corporate bond markets.’
  4. Figure 4.4 Return difference (%/y) between portfolios with high and low scores for ESG by provider

  5. ESG generates positive fund returns. A recent analysis of 745 European active sustainability funds revealed that 60% of them outperformed their traditional peers over a 10-year period, with a higher overall survivorship rate.26 The analysis clearly concludes that “there is no performance trade-off associated with sustainable funds. In fact, a majority of sustainable funds have outperformed their traditional peers over multiple time horizons.”
  6. Figure 4.5: Sustainable Funds Success Rate by Morningstar Category

  7. ESG reduces fund risk. Another study examining 10,723 funds found that sustainable funds experienced 20% less downside deviation than traditional funds, at comparable levels of return. The analysis concludes that: there is no financial trade-off in the returns of sustainable funds compared to traditional funds, and they demonstrate lower downside risk.”27
  8. Figure 4.6: Median downside deviation of Sustainable and Traditional Funds 2004-2018

Returning to the evidence from the ‘force for good’ data set, the level of ESG engagement conducted is also positively correlated with shareholder returns. Reexamining the over 20 listed banks in the data set, the intensity of ESG engagement appears to be closely tied to their generation of 10-year total shareholder returns, pointing to the value of investors not only screening for ESG compliance but also for proactively measuring ESG activity and performance as a potential indicator of future returns generation.

Figure 4.7: Total 10 Year Shareholder Returns for Banks in Analysis

Needless to say, there are many factors at play here. How sustainability and ESG investing strategies translate into an investor’s overall performance is of course a function of the individual strategies and processes employed. How and what one filters, what positive screening factors one prioritizes, whether one employs active or passive ESG monitoring, will all naturally impact an investor’s performance within a given asset class and fundamental strategy, and more. The overall business case for investing in ESG though is clear. Finance institutions who embrace ESG strategies therefore have the potential to benefit doubly, firstly through implementing ESG in its own operations and secondly through generating higher returns from adopting ESG investing strategies.


3. The ‘Force for Good at Scale’ Case – Being a ‘Force for Good’ Produces Superior Returns

While each of the leading financial institutions examined in this study is a leader in its country, asset class and among the leaders in the world in finance, there are some important differences between them that can be tested for performance implications, these are broadly based on their level of maturity of their development and their impact, and include:

  1. Commitment and quality of approach to ESG, sustainability and stakeholders. Determines whether these initiatives as a whole are mission-centric to the organization, strategic and values based. CEO level leadership and senior management oversight are good indicators of intentions, as are actual funds contributed to initiatives, ‘putting your money where your mouth is.’
  2. Level of integration and alignment of the organization to be and do ‘good’. Determines to what extent ‘force for good’ initiatives are integrated into the organization. Integrating sustainable processes, projects and resources into core business lines leads to much greater results than centrally managed initiatives that remain discrete from revenue centers.
  3. Quality of adaptation, innovation, and skill in designing product, process and business for changes in the external environment. Determines how effective or transformational the organization is likely to be in terms of its ‘force for good’ initiatives. Companies developing new products and services or pioneering new approaches clearly have a greater potential for impact than do companies which adopt tried and tested initiatives that are becoming industry standards.
  4. Scale and scope of ambition in positioning the organization at the intersection of big issues, big ideas and capital. Determines the absolute impact the organization is likely to have on the world. Clearly size matters in this respect, but without an equally large ambition for change and the commitment to execute, scale alone cannot solve big issue.
  5. Influencing changes in the global system of capital. Determines whether an organization is contributing actively to changes in the global economic system. At the highest level this would capture companies mobilizing resources and marshalling allies to address the root causes of challenges by changing the way the systems operate.

The financial institutions considered differ in their approach to being a ‘force for good’, being predominantly one of strategic, tactical, or operational, leading to different levels of overall impact. Using their disclosed ESG, sustainability and stakeholder initiatives to assess the five criteria above, the companies in the data set have been classified as either ‘highest impact’, ‘established impact’ and ‘emerging impact’. This analysis necessarily places the companies into categories evaluating them broadly and qualitatively rather than through a set of prescriptive rules or through numerical analysis.

  1. The performance variance in terms of shareholder returns generation for the 35 publicly listed companies in each group is significant. An analysis of the median 10-year total shareholder returns for the group benchmarked against a returns index (the MSCI All World Financial Index) shows that the public finance industry leaders acting as a ‘force for good’ as a group have outperformed the wider industry by 24%, generating median total shareholder returns of 54% over the ten-year period
  2. Within the leadership group, the organizations classed as predominantly having an ‘emerging impact’ outperformed the index by 10%. However, they showed the lowest level of returns within the leadership group, generating total shareholder returns of 40% over a ten-year period.
  3. Companies classed in the predominantly ‘established impact’ group outperformed the index group by 33%, generating total shareholder returns of 63% over the ten-year period.
  4. Companies classed in the highest tier of predominantly ‘highest impact’ showed the most significant outperformance of 86% against the index. Importantly, they generated the highest returns in the leadership group with total shareholder returns of 116% over a ten-year period.
  5. Figure 4.8 Total Shareholder Returns of Force for Good Companies

It is important to point out of course that the data sets of companies are both small and skewed in terms of selection bias. This report has explicitly focused on industry leaders across a range of subsectors and geographies, ensuring that the ‘force for good’ organizations will be significantly larger than the global benchmark, and in many cases more profitable, more diversified, more stable and better managed as well. In the absence of more comprehensive analysis using larger data sets it is difficult to isolate the impact of ‘force for good’ initiatives from these other factors in terms of their impact on shareholder returns.

Overall, the evidence suggests a positive business case for being a ‘force for good’ and by extension for pursuing the SDGs, which offer potentially significant economic rewards— through new markets, investment opportunities and innovations — as well as reduce risk to business performance and stability over the long term. This intuitively makes sense since there seems to be a tendency for organizations that learn to exert outsized influence, innovation and impact in the broader environment bring those same skills home to their core business and are more likely to succeed compared to those that have only focused on business as usual. There are bound to be costs if these are done in a manner that is disconnected from the core business and where the competences and spirit of breaking boundaries are not utilized, leading to diseconomies and distractions that damage the business. However, for astute leaders that manage the process of selecting where to make their impact and of learning and incorporating these skills well into their business, the benefits of being bold in making an impact seem to be substantial and for which there are no better training ground for organizational development.

The subject of performance is critical to the finance industry and the industry does not forget that if it is to meet its core mandate and allow those of its stakeholders who need returns to value them, it must deliver. A much more comprehensive and definitive analysis over and above the high level one above is required, given the small number of companies in this analysis. However, directionally the analysis points to a strong correlation between being a ‘force for good’, as defined in this report, and financial performance. This makes sense in the context of the factors that differentiate the higher performers from others, that are also leaders, regarding the level of maturity of their development. Given this, the growing belief that self-interest and community interest are not just aligned but one and the same thing is likely to be an enduring one, driving a self-reinforcing and sustainable cycle of more proactive engagement as a driver of improving financial and investment performance in the industry as a whole.


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End Notes

  1. 25. Source: Deutsche Asset & Wealth Management and the University of Hamburg, “ESG & Corporate Financial Performance Mapping the Global Landscape
  2. 26. Source: Morningstar Research June 2020 How Does European Sustainable Funds' Performance Measure Up?
  3. 27. Source: Morgan Stanley Institute for Sustainable Investing, “Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds”,