NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, October 7, 2019

By Jon Hale

Every day I see more evidence that sustainable investing is taking hold. Glancing at CNBC last month, there was Josh Brown exclaiming that “ESG and people investing in a socially responsible way is the megatrend of our generation and younger.” Back at my desk, the tower of ESG reports that I have every intention of reading has grown unstable, threatening to topple.

At the top of the pile was a recent Morgan Stanley report on performance. It caught my eye because it used Morningstar fund and separate-accounts data to examine the performance of sustainable investment strategies. Going back to 2004, it finds that sustainable strategies have produced returns in line with traditional strategies. The only statistically significant underperformance of sustainable strategies occurred nearly a decade ago, in 2010, and again back in 2004, while the most significant outperformance happened in 2017. This is consistent with a mountain of research on the topic that has demolished the myth that sustainable investing underperforms.

Photo courtesy of GotCredit.