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Mar 29, 2015

Sustainable investments mostly match or beat traditional investments

Morgan Stanley highlights improved operating performance and positive impact on stock price of sustainable policies

Sustainable investments match or beat the performance of comparable traditional investments most of the time, according to a Morgan Stanley study of thousands of funds over a seven-year period.

The study shows sustainable equity mutual funds had equal or higher median returns, and equal or lower median volatility, than traditional investments 64 percent of the time.

‘We believe sustainable investing will be key to the mobilization of private capital toward addressing global challenges, but the growth and development of this space remains hampered by a lingering perception that sustainable investments require a financial trade-off,’ says Audrey Choi, CEO of the Morgan Stanley Institute for Sustainable Investing, in announcing the results of the study. ‘Our review addresses the investment performance concern head-on, and the findings are very positive.’

The study, which includes 10,228 open-end mutual funds and 2,874 separately managed accounts, further shows that the sustainable separately managed accounts have an equal or lower median volatility than their traditional counterparts 72 percent of the time. They have equal or better returns just 36 percent of the time but perform inline on a risk-adjusted basis.

A Morgan Stanley review of studies and meta-studies on sustainable investment also concludes that sustainability can have a positive effect on both the stock price and operating performance of companies that are seeking that type of investment.

The firm says 90 percent of the studies analyzed show that sound sustainability standards lower the cost of capital, while 80 percent highlight a positive relationship between sustainability and stock performance and 88 percent show that good ESG practices improve operational performance.