Sustainable investing doesn’t require financial trade-off, says Morgan Stanley

The common perception that investing sustainably means losing some financial return is not true, according to a study conducted by the Morgan Stanley Institute for Sustainable Investing. Despite this, the misconception is hampering growth in the sector.

The report – Sustainable Reality: Understanding the performance of sustainable investment strategies – fins that investing in sustainability has usually met and often exceeded the performance of comparable traditional investments across asset classes over time. The research reviews over 10,000 open-end mutual funds and over 2,500 separately managed accounts over the last seven years.

The findings show that sustainable equity mutual funds met or exceeded the medium return of traditional equity funds for almost two-thirds of the time periods examined. Furthermore, sustainable equity mutual funds also had equal or lower median volatility for 64% of the periods.

Audrey Choi, CEO of the Morgan Stanley Institute for Sustainable Investing, said, “We believe sustainable investing will be a key in the mobilisation of private capital towards addressing global challenges, but the growth and development of this space remains hampered by a lingering perception that sustainable investments require a financial trade-off. Our review addresses the investment concern head-on, and the findings are very positive.”

The report also notes that long term annual returns of the MSCI KLD 400 Social Index, which compromises of firms scoring highly on environmental, social and governance (ESG) issues, exceeded the S&P 500 by 45 basis points between its inception in 1990 to the end of 2014.

A separate study released recently by the Morgan Stanley Institute for Sustainable Investing found that 70% of individual investors describe themselves as being interested in ESG factors when making investment decisions. However, over half of survey respondents believe sustainable investment means a financial trade-off.

Choi added, “Sustainable investing presents the opportunity for individuals and institutions to align their investments with their values, but there are clearly many investors who have reservations over whether sustainable investing will require them to sacrifice investment performance.

“Ultimately, we believe that sustainable investing is simply a smart way to invest, and our review shows preconceptions regarding subpar performance are out of step with reality.”

Photo: Sanja Gjenero via Flickr

Further reading:

70% of investors interested in sustainability

Morgan Stanley asks students for sustainable investment solutions

Morgan Stanley sets up sustainable investment body

63% of UK investors want to be offered sustainable investment options

Global sustainable investment reaches $21.4tn