It’s a year most of us now are more than happy to see in the rearview mirror, but 2020 was kind to one subset of the financial sector – ESG funds. “Think of ESG investing as a recovery strategy, and the future of the global economy comes into sharper focus,” wrote TriplePundit’s Tina Casey last April.
Investors have heeded that call.
According to Morgan Stanley, at a macro level ESG funds overall proved to be more resilient than conventional fund counterparts. The financial giant’s Institute for Sustainable Investing crunched the numbers and found that during 2020, the total returns U.S. sustainable and ESG equity funds outpaced traditional funds by 4.3 percent.
ESG bonds also held their own, providing returns 0.9 percent higher than the traditional bond funds currently available on the market.
“The difficult events of 2020 underscored the importance of sustainability concerns and strengthened the rationale for sustainable investing,” said Audrey Choi, Morgan Stanley’s Chief Sustainability Officer and CEO of the Institute for Sustainable Investing in a public statement. “Sustainable funds’ strong risk and return performance during an exceptionally turbulent year further erodes the persistent misconception that sustainable investing requires a performance sacrifice.”
The company’s research follows up on a previous report that concluded ESG funds were outpacing traditional funds during the first six months of 2020. Over the years, Morgan Stanley’s analysts said that both ESG and conventional funds performed at a similar pace – but for investors who are queasy at the thought of market volatility, ESG funds generally were far more stable and offered more downside protection.
Other financial companies have made similar conclusions. In fact, sustainable and ESG funds scored record during the first few months of the pandemic amid global equity markets’ turmoil, according to Morningstar, and for the most part maintained that performance as 2020 dragged on.
U.S. investors in turn have been buying into these funds’ performance. A Morgan Stanley report from last year says that approximately half of the country’s individual investors have turned to sustainable investing. Meanwhile, at least 80 percent of asset-owner financial institutions say they are integrating ESG considerations within their investment processes.
There’s no reason to think this trend will continue through 2021.
“The U.S. sustainable investing market ended the year on a high note, with record-breaking net inflows in October, November and December,” added Matthew Slovik, Managing Director and Head of Global Sustainable Finance at Morgan Stanley. “Amid this continued growth, analyzing the performance of sustainable investments, and proving their resiliency, is critical to advance the field and to encourage others to invest with an ESG mindset.”
Meanwhile across the pond, ESG funds had a banner year in Europe, too, according to the Financial Times.
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