You Don’t Have to Sacrifice Returns for Sustainability
What should performance expectations be for someone interested in sustainable/responsible funds? Do investors wanting to align their investments with their personal values, or those seeking to have an environmental or societal impact with their investments, have to settle for inferior returns?
That’s a commonly believed theory—by narrowing the investment universe based on exclusionary screening of certain products or industries, sustainable/responsible investors risk underperforming market benchmarks. However, exclusionary screening is only one facet of the overall approach taken by sustainable/responsible investors today, and is an approach that’s being used less extensively than in the past.
A second facet is more positive, and definitely rising in popularity. It evaluates companies based on how well they are managing the various environmental, social, and corporate governance, or ESG, issues they face in their businesses. A growing body of research suggests that companies with better ESG performance exhibit better financial performance, particularly over the long run.