Sustainable Investing Research Suggests No Performance Penalty

Debunks the commonly held belief that sustainable investing has a negative effect on investment performance

Morningstar Editors 01 December, 2016 | 13:42
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Morningstar recently published a review of academic research on sustainable investing. The report, “Sustainable Investing Research Suggests No Performance Penalty,” debunks the commonly held belief that sustainable investing has a negative effect on investment performance. For the increasing number of investors interested in sustainable investing, the academic research implies they can receive competitive performance while also addressing their sustainability concerns.

Key highlights of the report include:

• Academic research about the performance of sustainable/responsible (S/R) portfolios, mutual funds, and indexes suggests there is no performance penalty associated with sustainable investing. S/R funds and indexes tend to perform in line with conventional funds and indexes, and, if anything, slightly outperform.

• An analysis of the Morningstar Rating™ for S/R funds globally, from 2002-2016, indicates they perform on par with conventional funds. The rating distribution of S/R funds clusters toward the middle of the distribution compared with the overall universe, but has a positive skew. There are more 5-star S/R funds than 1-star S/R funds and more 4-star S/R funds than 2-star S/R funds.

• Several studies point to exclusionary screens as a potential drag on performance while the inclusion of environmental, social, and governance (ESG) factors in the investment process can lead to positive performance outcomes.

• Studies on corporate sustainability suggest that companies with higher ESG ratings can outperform comparable firms in both accounting and stock-market terms.

The research report is available here.


About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on nearly 540,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on approximately 18.5 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $200 billion in assets under advisement and management as of Sept. 30, 2016. The company has operations in 27 countries.


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