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 the author studies. The 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. The 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. The author provides a detailed analysis of an Entrepreneur Index, spanning several positive and negative economic cycles that points to a consistent conclusion. The evidence suggests investment managers, especially those interested in ESG, would be wise to partake in an entrepreneur approach.