Entrepreneurs Breed ESG-Rich Companies: Reap Exceptional Returns as Harvest Byproduct

Abstract

ESG (Environment, Social and Governance) oriented strategies have become desirable among individual and institutional investors in recent years, corresponding with qualities desired by entrepreneurial employees, investors and community stakeholders. Consistent with a long-term, value-creating orientation, entrepreneurs forgo immediate rewards and devote enormous resources to advance their vision. It is this group that we study.

Our research concludes that entrepreneurial organizations develop stronger governance traits compared with “typical” companies. Perhaps, in part, because the cause represents more than financial rewards, entrepreneurial owners pursue a more focused perspective shared by key stakeholders.

Our analytics indicate that an Entrepreneur factor exists, and is one of the most significant factors in explaining excess returns. These entrepreneurs also contribute measurable ESG benefits. We provide a detailed analysis of an Entrepreneur Index, spanning several positive and negative economic cycles, that points to a consistent conclusion. Our evidence suggests investment managers, especially those interested in ESG, would be wise to partake in an entrepreneur approach.