Janine Whittington, writing a Masters of Finance thesis ‘Focusing Capital on the Long Term’
If investors are indeed caring more about sustainability and its value creation, there should be evidence of a link between long-term investing and higher levels of sustainability/corporate social performance.
Janine Whittington, writing a Masters of Finance thesis ‘Focusing Capital on the Long Term’

ARTICLE: Sustainable performance and long-term investing

Shedding new light on the link

There is a clear intuitive connection between long-term investing and ‘sustainability’; but does a focus on the long-term actually improve the sustainability performance of companies (not to mention fulfilling the interests of their investors)? With this article Janine Whittington, one of Kempen’s in-house scholars, shares the latest academic insights and evidence around the growing link between long-termism, ESG, and the sustainability and corporate social performance of companies.

Last month, MIT Sloan Management Review (MIT SMR) and The Boston Consulting Group (BCG) released ‘Investing for a Sustainable Future: Investors Care More about Sustainability than Many Executives Believe, in which evidence of a gap between manager and investor perceptions of sustainability was discovered. The report claims companies are underestimating the level of importance investment firms are placing on sustainability performance in their investment decisions. But which level is right? Are the managers of these companies naive in their thinking, or are investors now placing too much weight on sustainability? And if investors are indeed caring more about sustainability and its value creation, there should be evidence of a link between long-term investing and higher levels of sustainability/corporate social performance (CSP). The remainder of this article will therefore be an introduction to some of the most compelling academic research into this link.

First, a look into the profitability of CSP for shareholders: Khan, Serafeim, Yoon (2015)

To find evidence of shareholder value within the 'sustainability' investment class, this academic paper splits sustainability issues into material and nonmaterial classifications. The 'materiality' factor is classified as issues per industry which are addressed in both KLD (Environmental, Social, and Governance Scoring) and SASB (sustainable accounting standards) databases. By analysing firm performance up to three years forward, the results indicate that firms scoring better on the material sustainability issues have more positive changes in return of sales (ROS) and sales growth, and experience an alpha 3.32% higher than other firms, thus overall outperforming the lower scoring firms. Further, scoring highly on immaterial sustainability issues shows either a small positive or neutral performance level, and firms which make no investments in either set of sustainability issues incur the worst performance with an estimated alpha of -2.20%. This leads the net outcome of this study to indicate that high scores on sustainable issues do not destroy the value of the firm, but often adds.

Next, a connection between long-term investors and CSP: Cox, Brammer, and Millington (2004)

This paper investigates the relationship between institutional shareholding (both long and short term) in the UK and socially responsible behaviour by companies. Pension, life assurance, and charitable funds were used as the proxy for long-term investors, as they characteristically have longer investment horizons, while unit and investment trusts proxied for short horizons. The overall results indicate that the presence of long-term shareholders is positively related to CSP. Yet, interestingly there was no statistically significant relationship between charity ownership and CSP. The authors found this surprising because of both the pressure on charities to consider CSP in their investments and their typical pro-social agenda. Additionally, a notable conclusion the paper puts forth is that although low levels of social performance act as a deterrent from investment, high levels show an insignificant role in attracting investors. Therefore, institutional investors exclude poor performers, but do not necessarily pick top performers.

Further, how firms attract long-term investors with CSP: Eccles, Ioannou, and Serafeim (2014)

After grouping firms into ‘high’ or ‘low’ sustainability classifications, with ‘high sustainability’ firms voluntarily adopting sustainability processes by 1993, the authors compared the organisational processes, accounting and stock market performance exhibited by 2009. The findings show that high sustainability firms performed better, and were characterised by a more long-term orientation, being roughly 35% more likely to recognise key issues and stakeholders necessary for long-term success. Actions such as maintaining a longer time horizon in their external communications, i.e. during conference calls with sell-side analysts, had the cascading effect of increasing the proportion of long-term investors. These firms also undertook governance policies that included sustainability being accounted for by the board of directors and the linking of top executive compensation to sustainability metrics. Thus, incorporating social and environmental issues into strategy and business model development brings firms towards a long-term orientation and subsequently towards long-term investors.

Lastly, seeing if long-term investors increase CSP after they invest: Neubaum and Zahra (2006)

By analysing Fortune 500 firms, the authors of this paper focus on the moderating effects that investment horizon and owner activism have on the institutional ownership-CSP relationship. They study the power institutional owners have over companies and their executives, and find that executives react to long-term investors’ CSP expectations. They credit these results to the higher level of dependence firms have upon these investors compared to short-term institutional owners. Further, they find that although activism is not significantly related to future CSP, when combined with long-term institutional holdings, there is a positive effect on the future CSP of a firm. The authors suggest that long-term institutions coordinating activism together could help improve their own financial performance and promote CSP issues against management without exhausting their individual resources.

The aforementioned articles offer a brief insight into the extensive research that has been conducted on sustainability, specifically demonstrating its positive relationship with long term investors. For further reading, the recently published paper The Financial and Societal Benefits of ESG Integration: Focus on Materiality by Serafeim, Huang, Linder, Faul, and Streur (2016) is an excellent start. Additional research to strengthen this conclusion should follow, as emphasis continues to grow on sustainability for future generations.

About the author

Janine Whittington joined the Kempen & Co team in May 2016, from Tilburg University, to write her Masters of Finance thesis ‘Focusing Capital on the Long Term’. She obtained her undergraduate business degree in her home country of Canada from McMaster University, during which time she completed student exchanges in both Glasgow and Tilburg. Coming from a city in Canada called Ajax, working in Amsterdam was a natural fit for Janine.


Cox, Paul, Stephen Brammer, and Andrew Millington. "An empirical examination of institutional investor preferences for corporate social performance." Journal of Business Ethics 52.1 (2004): 27-43.
Eccles, Robert G., Ioannis Ioannou, and George Serafeim. "The impact of corporate sustainability on organizational processes and performance." Management Science 60.11 (2014): 2835-2857.
Khan, Mozaffar, George Serafeim, and Aaron Yoon. "Corporate sustainability: First evidence on materiality." The Accounting Review (2015).
Neubaum, Donald O., and Shaker A. Zahra. "Institutional ownership and corporate social performance: The moderating effects of investment horizon, activism, and coordination." Journal of Management 32.1 (2006): 108-131.
Serafeim, Huang, Linder, Faul, and Streur. “The Financial and Societal Benefits of ESG Integration: Focus on Materiality” The Calvert-Serafeim Series (2016)