You know by now that socially responsible investing (SRI) does make a difference in the world, but perhaps you’re wondering what kind of financial difference it will make in your portfolio. Will you sacrifice financial returns if you align your investments with your values?
The evidence, amassed through hundreds of studies, shows that historically SRI investments have performed as well as or better than their conventional counterparts.
For 15 years (from 2007-2022), financial studies have been confirming what green investors already know: that investing to support people and the environment makes financial sense.
For example, Morningstar’s 2022 Sustainable Funds US Landscape Report found that most sustainable funds delivered stronger total and risk-adjusted returns than their conventional counterparts. “Slightly more than half of sustainable funds finished in the top half of their Morningstar Category, led by equity funds,” the report said. Data for the previous five years showed even better results—the returns of 74% of sustainable funds ranked in the top half and 49% in the top quartile returns.
In 2021, a study from Morgan Stanley Institute for Sustainable Investing found that in a year marked by volatility and recession, funds that focused “on environmental, social and governance (ESG) factors, across both stocks and bonds, weathered the year better than non-ESG portfolios.” The research looked at more than 3,000 mutual funds and exchange-traded funds (ETFs) and found that sustainable funds performed better than non-ESG funds in 2020 and 2019.
A meta-analysis by the NYU Stern Center for Sustainable Business of over 1,000 studies on ESG and financial performance between 2015 and 2020 found that 59% of sustainable investments showed similar or better performance compared to conventional investments, while only 14% performed worse. “ESG investing appears to provide downside protection, especially during social or economic crises,” the study concluded.
Even back in 2007, a report by the United Nations Environment Programme Finance Initiative analyzed academic work and key broker studies, finding that SRI investment strategies had competitive performance with non-SRI strategies.
An additional compendium of SRI performance research is available at ussif.org/performance.
Conclusion: You can do well by doing good with SRI.
Terminology
SRI… ESG… sustainable investing… we know what it is, but what do we call it?
Socially responsible investing began in the US investment industry as early as the 1950s with churches and unions that screened their investments and shareholder activism around environmental, civil rights, and weapons holdings. Centering on values, the idea was to use your assets to create a better world.
The concept is even older, if we look at biblical and Indigenous Peoples’ teachings about building and stewarding wealth.
As SRI became more systematic and formalized, the term “ESG investing” came into use, with the idea of applying more measurable standards for environmental, social and corporate governance conduct.
Whether called SRI, ESG or another name, this approach to investing always centers on risks to people and the planet and on financial performance.
Whatever term you use, it’s clear that responsible investing works—and is here to stay nationally and globally.
