More Evidence of Solid Performance From Sustainable Funds
The most frequently asked questions about sustainable investing still have to do with performance. In theory, when investors limit their investment universe for moral or ethical reasons, they risk underperformance because they are not selecting the most efficient set of investments.
That’s perfectly normal, as Meir Statman argues in his recent book, “Finance for Normal People: How Investors and Markets Behave.” Individual investors–aka “normal people” in Statman’s terms–choose less-efficient portfolios for all kinds of reasons.
Those who choose a less-efficient portfolio for ethical reasons receive expressive and emotional benefits that can offset the utilitarian costs of not receiving the highest possible return at the lower level of risk offered on an efficient frontier. I think it can also make them better investors–more engaged, patient, and focused on the long term.