Sustainable investing did not deliver higher returns than standard index funds, according to a new study from Scientific Beta – Sustainability Alpha in the Real World: Evidence from Exchange-Traded Funds (ETFs).
The index provider and consultancy, which is linked to France’s EDHEC Business School, assessed the performance of sustainable investing from a value-weighted portfolio of ETFs that follow systematic ESG investing strategies in the US equity market.
The study noted that widely commented periods of outperformance, such as the year 2020, can be explained in large part by industry effects, such as a tilt towards technology stocks.
Over the past decade, such periods of outperformance are offset by corresponding periods of underperformance, leaving ESG investors with returns of -0.2% compared with the market index and -0.7% versus a benchmark with matching industry exposure, the study said.
“For investors looking to integrate ESG objectives in their investment process, it is crucial to question what impact this would have on their portfolio’s financial performance,” says Dr. Felix Goltz, co-author, and research director at Scientific Beta.
He adds, “The existence of numerous methodologies to integrate sustainability, which may not be representative of actual practice, has made it challenging to assess this impact empirically.
Our study provides an assessment of the ‘real-world’ performance of sustainable investing, drawing on information from the market of exchange-traded funds. We encourage investors to consider such ‘real-world’ results and be aware of the limitations of analysis that selects particular funds or creates stylised strategies that may not reflect the real world of sustainable investing.”
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