“Real world” ESG performance was described as “unremarkable” following a study.
Scientific Beta looked at returns from value-weighted ETF funds that follow ESG strategies in the US equity market and found they did not deliver higher returns than standard index funds.
The firm said that “widely commented” periods of outperformance, such as the year 2020, can be explained in large part by industry effects, such as a tilt towards technology stocks.
Over the past decade, periods of outperformance were offset by corresponding periods of underperformance, leaving ESG investors with returns of -0.2% compared with the market index and -0.7% compared with a benchmark with matching industry exposure.
Felix Goltz, co-author of the report (‘Sustainability Alpha in the Real World: Evidence from Exchange-Traded Funds’), said: “For investors looking to integrate ESG objectives in their investment process, it is crucial to question what impact this would have on their portfolio’s financial performance. The existence of numerous methodologies to integrate sustainability, which may not be representative of actual practice, has made it challenging to assess this impact empirically.”
Goltz said he encouraged investors to consider such ‘real-world’ results and be aware of the “limitations of analysis that select particular funds or create stylised strategies that may not reflect the real world of sustainable investing”.
Scientific Beta is linked with the EDHEC Business School in France.
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