ESG backlash leads to first annual net outflows, but low ESG risk portfolios outperform.

From Morningstar: 2024-06-19 11:54:00

Sustainable investing faces a turning point with the backlash to ESG, leading to the first annual net outflows in 2023 for sustainable equity funds in both the US and Europe.

Despite the challenges, there is still hope for sustainable investing as flows into ‘light green’ SFDR Article 8 funds rebounded in Europe in Q1 2024, receiving EUR 14 billion in new money.

Morningstar Sustainalytics and Natixis Investment Managers Solutions find that low ESG risk portfolios generally outperform high ESG risk portfolios, showing better raw and risk-adjusted returns across different regions.

Low ESG risk portfolios demonstrate better performance in market crises, with stress tests indicating improved return performance in past economic crises in all regions.

Lower ESG risk portfolios consistently outperform high ESG risk portfolios in Europe since 2015, while North America shows closer trading performance. Asia-Pacific also displays strong ESG risk premium.

Certain sectors, like healthcare and utilities, consistently reward low ESG risk investing in all regions, while technology sectors may see varying performances based on ESG metrics of companies like Amazon, Meta, and Alphabet.



Read more at Morningstar: Portfolios With Low ESG Risk Outperform in Times of…