It is time to lay to rest the preconception that responsible investing reduces returns, according to a new report by Mercer, the consulting and investment services company.

Shedding Light on Responsible Investing: Approaches, Returns and Impacts brings together the results of 16 academic studies on the sector and finds that ten of these show a positive impact of environmental, social and corporate governance factors on financial performance, four show a neutral impact and two show a neutral-negative impact.

The report follows up an earlier report, Demystifying Responsible Investing Performance, produced by Mercer and the asset management working group of the United Nations environment programme finance initiative, which found a positive relation between ESG factors and performance in ten of the 20 studies reviewed, and a negative relation in only three.

The latest report includes studies based on microfinance funds and investment funds, whereas the previous report focused on the relationship between ESG factors and listed equities due to a lack of data on other areas.

The report adds to a growing body of evidence on responsible investing, much of which is positive and dispels the myth that the practice reduces returns by limiting the available investment universe.

Responsible investing is not a new phenomenon. There are many historical examples of political and religious considerations directing investment, such as the anti-apartheid and Quaker movements, often with powerful consequences.

But the landscape of responsible investing is changing as it moves from a fringe to a mainstream activity and becomes a broader practice, with new tools for incorporating ESG factors into the investment process. Whereas screening was the predominant form of responsible investing, investors increasingly take a holistic approach by integrating ESG factors into valuation metrics.

This is due to the realisation by mainstream investors that the short term nature of mainstream investment may miss out on long term trends in companies which benefit from good ESG performance, a spokesperson for Mercer told WealthBriefing. These companies create value by minimising reputational risk and encouraging trust from consumers and investors. Also, when it comes to climate change, companies which position themselves well will perform better financially, they said.

“[The] Shedding Light report further builds the already strong case that considering ESG factors can add real and measurable value to an investment portfolio,” said Tim Gardener, global chief investment officer for Mercer’s investment consulting business.

Responsible investing's shift from fringe to mainstream means that time series data on the sector is maturing, encouraging academic studies. This in turn is translating into a better understanding of the sector and the quantitative relationship between ESG factors and financial performance.