Sustainable investors beating market expectations, claims Morgan Stanley

Investment funds that use sustainability metrics to judge their stocks are likely to outperform those that don't, according to a new study by Wall Street firm Morgan Stanley.

Morgan Stanley found that mutual funds using sustainability metrics were more likely to be successful.Photo: lev radin /

Morgan Stanley found that mutual funds using sustainability metrics were more likely to be successful.Photo: lev radin /

And the gap will only get bigger as climate change awareness grows, said the analysts.

The investment bank analysed the performance of more than 13,000 mutual funds and investment portfolios, comparing the performance of those that look at environmental, social and governance (ESG) data, to those that don't.

Sustainable mutual funds had equal or higher median returns and equal or lower volatility than traditional funds for 64% of the periods examined.

The authors of the Morgan Stanley report said: "Ultimately, our comparison indicates that investing to create a positive impact does not necessarily require making a trade-off in investment performance. On the contrary, sustainable investments often exhibit favourable return and risk characteristics compared to their traditional peers.

"We expect that, over time, the fundamental drivers of these performance differences will only grow in importance to investors, both as a way to address important global challenges and to improve investment performance."

Figure 1: This sustainability index beats the S&P 500 between 1990-2014


In a recent Morgan Stanley poll of 800 investors, 71% claimed they were interested in sustainable investing. but 54% said they believe there's a trade-off between sustainability and financial success.

Chief executive of the Morgan Stanley Institute for Sustainable Investing, Audrey Choi, said the new figures would help to reconcile this misconception. "Ultimately, we believe that sustainable investing is simply a smart way to invest, and our review shows preconceptions regarding sub-par performance are out of step with reality," she said.

Green boom

Her optimism is reflected by recent figures from around the world suggesting that 'green investment' in the broadest sense is taking off.

Ratings agency Standard & Poor projected on Monday that a record $30bn of 'green bonds' could be issued by private companies this year, helping to finance a growing number of environmental and sustainability projects around the world.

In the UK specifically, almost £37bn has been invested in renewable energy since 2010, while the Green Investment Bank has helped mobilise more than £5bn investment in green projects in just over two years.

Funding sustainability at Sustainability Live 2015  

The Green Investment Bank's head of sustainable finance Gavin Templeton will feature among an expert panel discussing funding sustainability at our brand new high-level Conference at Sustainability Live 2015 in April. The panel will explore how to get access to funding and the types of funding available - public and private. 

Find out more and register to attend the Sustainability Live 2015 Conference for free here. 

Brad Allen


bank | Data | green investment bank | investors


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