Although sustainable investment options are becoming more important to investors, many are convinced that sustainability and financial returns imply a tradeoff.
A study released Tuesday by the Morgan Stanley Institute for Sustainable Investing addressed this notion head-on—with some positive findings.
According to the report, investing in sustainability has usually met and often exceeded the performance of comparable traditional investments, on both an absolute and a risk-adjusted basis, across asset classes and over time.
Morgan Stanley reported last month that healthy majorities of respondents in a survey were interested in sustainable investing and expected it to become more prevalent by the end of the current decade.
At the same time, a slight majority of those investors expected to give up some performance.
For its new report, Morgan Stanley reviewed 10,228 open-end mutual funds and 2,874 separately managed accounts over the last seven years.
The review found that sustainable equity mutual funds met or exceeded the median return of traditional equity funds for 64% of the time periods examined.
In addition, those funds also had equal or lower median volatility for nearly two-thirds of the time periods examined.
For the seven-year trailing 2008–2014 period, sustainable equity mutual funds met or bettered median returns for five out of six different equity classes, including large-cap growth.
Long-term annual returns of the MSCI KLD 400 Social Index, comprising firms that score well on environmental, social and governance criteria, exceeded the S&P 500 by 45 basis points, between its inception in 1990 to the end of 2014 (this index is unmanaged and not available for direct investment, according to a Morgan Stanley statement).
“Sustainable investing presents the opportunity for individuals and institutions to align their investments with their values, but there are clearly many investors who have reservations over whether sustainable investing will require them to sacrifice investment performance,” Audrey Choi, chief executive of the Morgan Stanley Institute for Sustainable Investing, said in the statement.
“Ultimately, we believe that sustainable investing is simply a smart way to invest, and our review shows preconceptions regarding subpar performance are out of step with reality.”
— Check out Sustainable Investing Accounts for 30% of Managed Assets: Study on ThinkAdvisor.