Do you have to sacrifice returns with ESG investing?

The field of ESG investing is new, and the amount of data is limited. Though ESG investing was once thought to generate lower returns, we have more data showing that the opposite may be true.

According to Morningstar, in 2020, three out of four ESG funds exceeded their category average

And there is now plenty of academic research showing that ESG stocks or funds generate better returns:

  1. A June 2021 study by Pastor, Stambaugh, and Taylor found that stocks with high ESG ratings outperformed stocks with low ratings by 35% between 2012 and 2020. The authors believe that green stock outperformance was related to growing concern about the environment
  2. A 2020 report by the NYU Center for Sustainable Business analyzed over 1,000 studies on ESG and performance, finding a positive correlation
  3. Morningstar’s research from 2020 found that most ESG funds they tracked outperformed their conventional counterparts over ten years. They looked at 745 Europe-based funds over three, five, and ten years (ESG has been around in Europe longer than in the U.S.)
  4. A 2019 report by the Morgan Stanley Institute for Sustainable Investing found that between 2004 and 2018 ESG funds had lower downside risk than traditional funds
  5. A 2018 study by the UN Principles of Responsible Investment found that ESG portfolios outperformed the MSCI index over ten years
  6. A Harvard Business School study from 2015 found that firms with good performance on material sustainability issues significantly outperform firms with poor records
  7. A 2015 Journal of Sustainable Finance and Investment analysis of over 2,200 studies on the impact of ESG on equity returns found that 63% had positive findings (ESG improved performance), and only 8% were negative