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Sustainable investment funds deliver on ESG but not always on returns

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The ultimate challenge for sustainable investment funds is being able to combine social, climate-related and governance issues with good returns.

This European Investors’ study ranks the funds by using the individual companies’ ESG scores and included these in the overall portfolio scores on the basis of their relative allocation in the sustainable investment portfolio. The Sustainable Europe Index Fund by InsingerGilissen tops the ranking. Our analysis also shows many funds have difficulties selecting companies that are fully sustainable, because companies have both positive and negative dimensions, which has an impact on the overall sustainability score of the fund.

Although sustainable funds are still relatively recent, for the moment market returns are disappointing. The return provided by more than 90 percent of the sustainable funds on offer, as they currently stand, lags behind that of the standard S&P 500 when a sustainable fund is compared with the world’s most popular tracker. When the comparison is restricted to the sustainable world, then the share funds perform best on average.

The disappointing return can be explained partly by the costs, but also by the allocation. It is striking that sustainable funds invest slightly less often in large-cap US equities, or large American companies. And this is precisely the category that has done well in recent years.

The research report can be found here.

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