Is Sustainable Investing a ‘Financial Sacrifice’?

July 8, 2014

moneytreeDoes sustainable responsible investing (SRI) require investors to give up returns? That was the premise of The Financial Sacrifice of Socially Responsible Investing, a June 2, 2014 interview with Wharton professor Olivia S. Mitchell on the Wall Street Journal’s The Short Answer blog.

Mitchell said that because SRI investors limit their investment choices by screening out certain companies, they may also limit their returns. “Depending on how strict your criteria are, you could end up ruling out many of the most profitable and highly stable firms around the world. Returns may also be cut due to compliance costs associated with SRI accreditation.”

We’ve been managing sustainable responsible investing (SRI) portfolios for about 20 years now, and while there was a time when the SRI portfolios we managed lagged our other managed portfolios, in the last five years, our SRI portfolios have performed as well or better than our other growth portfolios.

Many other reports and academic studies have also found that sustainable investing does just as well as conventional investing, including:

1. “Social Responsibility and Fund Performance” (login required), Morningstar, March 2012 article

“It has been surprisingly difficult to prove that social screens make any significant long-term difference to investment returns,” Morningstar found. The article cited academic studies that looked into the performance of SRI mutual funds.

“Among the first of these was a 1993 study by Hamilton, Jo, and Statman, which found no significant difference in the risk-adjusted returns of socially screened versus unscreened mutual funds. Meir Statman came to a similar conclusion in a 2000 follow-up study covering the 1990-98 time period, as have subsequent authors such as Bauer et al (2002) and Bello (2005).”

2.   Sustainable Investing: Establishing Long-Term Value and Performance (PDF), June 2012 report by Deutsche Bank

This report examined 100 academic studies and found that

“environmental, social and corporate governance (ESG) factors are correlated with superior risk-adjusted returns.”

3. Demystifying Responsible Investment Performance (PDF),  2007 report by the United Nations Environment Programme Finance Initiative and Mercer

The UN report reviewed 20 academic studies on environmental, social and corporate governance (ESG) factors and determined that

“the evidence suggests that there does not appear to be a performance penalty from taking ESG factors into account in the portfolio management process.”

You can read more about the competitive returns of SRI strategies at the US Forum for Sustainable and Responsible Investment (US SIF).

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