Research from two leading financial services firms suggests that the lingering perception that sustainable and fossil fuel-free portfolios are ‘risky’ is “out of step with reality”.
Stock market index company, MSCI, tracked the performance of a number of large and mid-sized stocks that do not invest in fossil fuels against stocks that do over a period of five years and found that the fossil fuel-free stocks have been outperforming their peers.
According to MSCI, since 2010 the ‘ex-fossil fuel’ stocks have grown by 170 per cent, whereas the stocks with investments in fossil fuels have grown by 162 per cent.
Outperforming traditional investments
Meanwhile, separate research analysing the performance of over 13,000 funds and managed accounts over the last seven years by the Morgan Stanley Institute for Sustainable Investing found that “investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time.”
The findings lend support to the growing divestment and ethical investment movement worldwide, with an increasing number of universities, philanthropic organisations and pension funds taking their investments out of fossil fuels over concerns that they could become so-called ‘stranded assets’ in the transition to a low carbon economy.
The movement has been particularly buoyed in recent months by the ongoing collapse of oil prices.
‘Smart way to invest’
Audrey Choi, chief executive of the Morgan Stanley Institute for Sustainable Investing, said: “We believe sustainable investing will be a key in the mobilization of private capital towards 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.
“Our review addresses the investment performance concern head-on, and the findings are very positive.
“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.”