Research shows that good governance leads to higher share price performance
A recent study in the United Kingdom (UK) from the Smith School of Enterprise and the Environment at the University of Oxford and Arabesque Asset Management has found that those companies with good corporate governance have higher share price performance.
Importantly, the new report, From the Stockholder to the Stakeholder: How Sustainability can Drive Financial Outperformance, found that those companies that have a view of governance as incorporating environmental and social issues (ESG) have a lowered cost of capital and ultimately higher operating and share price performance. ESG can include issues such as good workforce relations, environmental management and executive remuneration.
The study shows that sustainability and financial performance are linked. The foreword notes that there is ‘a remarkable correlation between diligent sustainability business practices and economic performance’, and shows that ‘88 per cent of reviewed sources find that companies with robust sustainability practices demonstrate better operational performance, which ultimately translates into cashflows. The second part of the report builds on this, where 80 per cent of the reviewed studies demonstrate that prudent sustainability practices have a positive influence on investment performance’.
The research into the economic benefits of corporate sustainability is based on 190 academic studies, industry reports, newspaper articles, and books.
The full report can be found at arabesque.com/oxford-study-pdf.