As the focus grows on environmental, social and governance-based investing, questions remain around whether the strategies sacrifice returns. Evidence points to ESG performing as well as or better than an unconstrained portfolio.
Meteoric growth: U.S.-based ESG assets grew to about $12 trillion by the end of 2018, a 38% increase from 2016, and 83% higher than at the end of 2014.
Good behavior pays: Equity returns of companies show improvement as their ESG profile improves. Energy companies made up about a third of the severe-risk category, while the few negligible-risk companies were mostly tech and real estate.
Better, or at least close: Some slices of ESG equity strategies have outperformed their non-ESG peers, while those that haven't trailed close behind.
Carbon avoidance helps: Active portfolio simulations by S&P and affiliate Trucost showed that stock selection to avoid high-carbon-producing companies will result in similar absolute returns and better risk-adjusted returns.
*Includes companies above the median market cap. **eVestment database gross-of-fees returns. Sources: Bloomberg LP, eVestment LLC, S&P Global Inc., Sustainalytics, US SIF