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More Than Just Doing Good, ESG Investments Help Manage Volatility

Industry and academic studies show evidence that ESG strategies have better long-term, risk-adjusted returns, lower downside and improved volatility.

Investors in the U.S. have been slow to adopt environmental, social and governance investments with a no-compromise approach when it comes to returns. ESG assets in U.S. exchange traded and mutual funds were an estimated $216 billion in 2017 while global sustainable assets under management increased to $23 trillion in 2016.

But those who are engaging ESG investments are seeing benefits.

A report by State Street Global Investor’s SPDR Practice Management Team showed that 69 percent of ESG investors said the investments helped them manage volatility. In fact, that was one reason they chose to invest that way—67 percent said lower volatility and 54 percent said lower downside risk were important reasons they incorporated ESG into their investment process. Overall returns haven’t suffered as a result, either.

“Industry and academic studies offer empirical evidence for better long-term, risk-adjusted returns, lower downside and improved volatility in ESG strategies. Mutual funds and separately managed accounts classified as sustainable investments often meet or exceed broad market performance, both on an absolute and a risk-adjusted basis, across asset classes and over time. Broader meta-analyses by Mercer, Morningstar and the University of Oxford have found mostly favorable or neutral-to-favorable returns on socially responsible investing,” according to the report, which cited the analyses mentioned.

But the report also reminds advisors that integrating ESG investments should be client-led and not product-focused. 


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TAGS: ETFs Industry
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