Sustainable Funds Start to Perform

Fund managers are starting to believe that integrating ESG can help reduce risk and uncover overlooked investment opportunities

Jon Hale 15 August, 2017 | 3:35PM

The most frequently asked questions about sustainable investing still relate to performance. In theory, when investors limit their investments for moral or ethical reasons, they risk underperformance because they are not selecting the most successful funds.

Individual investors, or "normal people", choose less-efficient portfolios for all kinds of reasons. Those who choose a less-efficient portfolio for ethical reasons receive emotional benefits that can offset the financial costs of not receiving the highest possible return.

But I think it can also make them better investors; more engaged, patient, and focused on the long term. More recently, as the field has become focused on incorporating environmental, social, and corporate governance, or ESG, the thinking behind the investment process and the performance expectations have changed.

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About Author

Jon Hale  Jon Hale is a consultant with Morningstar Institutional Investment Consulting.

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