A new study released by Morgan Stanley confirms that investors appear to place a premium on sustainability yet believe that sustainable investments require some financial sacrifice. Two key findings include: 1) nearly three-quarters (72%) of those surveyed believe that companies with good environmental, social, and governance (ESG) practices can achieve higher profitability and are better long-term investments; and 2) 54% believe that sustainable investing involves a financial trade off.
The study set out to analyze potential performance and risk differences between sustainable and traditional investments. A range of studies on sustainable investment performance were reviewed along with performance data for 10,228 open-ended mutual funds and 2,874 Separately Managed Accounts (SMAs) based in the U.S. Through the review, Morgan Stanley concluded that investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. Specific findings include:
- Sustainable equity mutual funds met or exceeded the median return of traditional equity funds for 64% of the time periods examined.
- Sustainable equity mutual funds also had equal or lower median volatility for 64% of the time periods examined.
- For the longest time period (seven years trailing, 2008-2014), sustainable equity mutual funds met or exceeded median returns for five out of six different equity classes examined (for example, large-cap growth).
- Long-term annual returns of the MSCI KLD 400 Social Index, which comprises firms scoring highly on environmental, social, and governance (ESG) criteria, exceeded the S&P 500 by 45 basis points between its inception in 1990 to the end of 2014.
The study was conducted by the Morgan Stanley Institute for Sustainable Investing. The Institute seeks to accelerate mainstream adoption of sustainable investing by developing industry-leading insights and scalable finance solutions to address global challenges.