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ESG Investing Is About Long-Term Risk Management (Part 2)

Sustainable investing isn't just about values, it's about managing risks that affect all investors.

Alex Bryan 27 August, 2020 | 15:02

In part 1 of the article, we discussed how ESG risk would have impacts on enterprise value in the long-term. In this part, we will continue explore whether ESG risks is linked to performance.

No Clear Link Between ESG and Performance
Historically, there hasn't been a clear link between firms' ESG attributes and performance. That's likely because portfolio-level ESG risks have been low in the past, as many ESG issues that companies have faced have been firm-specific.

Morningstar's quantitative research team recently published a study showing firms across the globe with higher ESG Risk Ratings from Sustainalytics did not post significantly better or worse returns than their lower-scoring counterparts over the trailing 10 years through September 2019 (1). ESG leaders and laggards also exhibited similar volatility and downside risk.

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About Author

Alex Bryan  Alex Bryan, CFA is the Director of Passive Fund Research with Morningstar.

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