Research says ESG investing doesn't mean lesser returns

Do investors sacrifice returns when they try to apply their values to their portfolios?

Not necessarily, according to a recently published study on environmental, social and governance investing (ESG for short).

“Quite simply, there is no performance cost,” according to a summary posted by the CFA Institute, publisher of the study in its Financial Analysts Journal.

ESG investing neither adds nor detracts value from investment portfolios, according to the summary posted on the CFA Institute’s Enterprising Investor blog. The study was done by a team of French academics: Marie Brière, Jonathan Peillex, and Loredana Ureche-Rangau.

Their study looked at the extent to which socially responsible techniques contribute to the performance of socially responsible funds compared to other factors such as market movements, asset allocation and active management.

“The study results suggest that (socially responsible) screening is a relatively minor component in the performance of (socially responsible) funds, according to the Enterprising Investor.

The study’s authors state that socially responsible investors can “do equally well or badly while doing good.”

This is good news for the growing number of investors interested in ESG investing, which has grown to over $8 trillion in assets under management, according to the Forum for Sustainable and Responsible Investment (US SIF). That’s up from $1.4 trillion in 2012.

There’s growing research that both individual and institutional investors are growing more interested in sustainable investing that addresses concerns about climate change. There’s even talk of a “Trump Bump” in ESG investing amid signs of growing interest since the election of a new president who dismisses climate change concerns.

Investors added $5.8 billion into ESG funds in 2016, with three quarters of that amount coming in the month of December, just after Trump’s election.

It’s believed that younger investors, in particular, are interested in sustainable investing.