Sustainable investment funds are proving to be longer-lasting and more profitable than their traditional counterparts, according to recent research by Morningstar. The study revealed that three-quarters of sustainable funds have endured for a decade or more, contrasting sharply with less than half of traditional funds achieving the same longevity. The research involved a comprehensive examination of 745 sustainable funds compared to 4,150 traditional funds, showcasing the resilience and superior performance of sustainable funds in nearly all categories.
Morningstar's findings underscore the financial viability of sustainable investing, with sustainable funds surpassing traditional funds in all but one category considered in the study. Notably, the average excess returns for sustainable funds in the first quarter of 2020 ranged from 0.09% to 1.83% across various categories. Furthermore, these funds demonstrated impressive performance on an international scale, matching or exceeding returns in both bond and share categories, whether in the UK or abroad.
"Average returns and success rates for sustainable funds suggest that there is no performance trade-off associated with sustainable funds. In fact, a majority of sustainable funds have outperformed their traditional peers over multiple time horizons," – Morningstar
Sustainable funds have not only shown resilience but also delivered substantial annual returns over the past decade. For instance, funds invested in large global companies yielded an average annual return of 6.9%, compared to 6.3% for traditionally invested funds. This trend highlights the growing appeal of sustainable investing, which aligns profitably with ethical and environmental considerations.
The market dynamics during the coronavirus crisis further accentuated the benefits of sustainable investing. While the Nasdaq index of US tech stocks has fully recovered from the crisis, shares in oil, gas, and coal companies have significantly plummeted. Conversely, many US tech stocks, highly favored by environmental investors, have soared, emphasizing the strategic advantage of sustainable investments during economic upheavals.
Michael Kind from ShareAction expressed optimism about these findings:
"It’s very positive, but also not surprising, to see that funds with robust environmental, social and governance (ESG) strategies are overall better performers financially." – Michael Kind of ShareAction
The shift towards sustainable investing is also reflected in recent initiatives by major investment firms. Vanguard has launched two ethical index funds targeting UK investors, while Aviva has unveiled a "climate transition" fund. These developments underscore a growing recognition among investors of the financial benefits associated with robust ESG strategies.