Performance & SRI

Sustainable, responsible, and impact investing (SRI) spans a wide range of products and asset classes, embracing not only public equity investments (stocks), but also cash, fixed income and alternative investments, such as private equity, venture capital and real estate. Sustainable and responsible investors are like other investors in seeking a competitive financial return on their investments. The evidence is clear that sustainable and responsible investors do not have to pay more to align their investments with their values, or to avoid companies with poor environmental, social or governance practices.


From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance is a 2015 meta-study conducted by Oxford University and Arabesque Partners, which categorized more than 200 sources, including academic studies, industry reports, newspaper articles and books. According to their results, "88 percent of reviewed sources find that companies with robust sustainability practices demonstrate better operational performance, which ultimately translates into cash flows." Furthermore, "80 percent of the reviewed studies demonstrate that prudent sustainability practices have a positive influence on investment performance."

Sustainable Reality: Understanding the Performance of Sustainable Investment Strategies, a 2015 report 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, based on its review of US-based mutual funds and separately managed accounts. "Sustainable equity mutual funds had equal or higher median returns and equal or lower volatility than traditional funds for 64 percent of the periods examined."

In 2015, the Global Impact Investing Network (GIIN) and Cambridge Associates jointly published the report Introducing the Impact Investing Benchmark. The Cambridge Associates Impact Investing Benchmark includes over 50 private investment funds of vintage years 1998 to 2010 that have the specific objective to create positive, measurable social impact and to produce risk-adjusted, market-rate financial returns. Cambridge Associates measured the Impact Investing Benchmark against a comparative universe of 705 funds with no social impact objective in the same industries, geographies and asset classes and of the same vintage years. According to their analysis, "private impact funds—specifically private equity and venture capital funds—that pursue social impact objectives have recorded financial returns in line with a comparative universe of funds that only pursue financial returns." The "funds in the Impact Investing Benchmark posted an IRR [internal rate of return] of 6.9 percent as of June 30, 2014, while a comparative universe of private investment funds with no social impact objectives and with the same vintage years returned 8.1 percent." Additionally, "US-focused impact investing funds under $100 million returned a 13.1 percent pooled net IRR versus a 3.6 percent IRR for comparative US funds under $100 million."

In 2014, TIAA-CREF Asset Management released Socially Responsible Investing: Delivering Competitive Performance. In the report, the firm says its "analysis of leading SRI equity indexes over the long-term found no statistical difference in returns compared to broad market benchmarks, suggesting the absence of any systematic performance penalty. Moreover, incorporating ESG criteria in security selection did not entail additional risk. SRI indexes and their broad market counterparts had similar risk profiles, based on Sharpe Ratios and standard deviation measures."

How and Why SRI Performance Differs from Conventional Strategies, a 2014 report by Envestnet | PMC investigated the differences in SRI and non-SRI domestic equity mutual fund performance. It analyzed average (mean) performance and also compared total and risk-adjusted returns at points on distributions away from the means. Among its findings, it found that "SRI and non-SRI fund performances are nearly identical at the mean, supporting the conclusion by SRI proponents that, on average, socially conscious investing does 'no harm' relative to unconstrained, conventional investing."

Sustainable Investing: Establishing Long-Term Value and Performance, a 2012 meta-analysis by DB Climate Change Advisors of more than 100 academic studies, finds that incorporating environmental, social and governance data in investment analysis is “correlated with superior risk-adjusted returns at a securities level” and that SRI approaches that merely employ exclusionary screens, while showing little upside, do not underperform.
In November 2009, Mercer issued a report, Shedding Light on Responsible Investment: Approaches, Returns and Impacts, in which it reviewed a further 16 academic studies on SRI and financial performance that were published after the 2007 UNEP FI review. It found that of these 36 studies, published between 1995 and 2009, 20—more than half—found evidence of a positive relationship between ESG factors and financial performance, and only three found evidence of a negative relationship. It concluded that “a variety of factors, such as manager skill, investment style and time period, is integral to how ESG factors translate into investment performance; therefore, it is not a ‘given’ that taking ESG factors into account will have a uniform impact on portfolio performance, and we expect significant variation across industries.” 

In October 2007, the Demystifying Responsible Investment Performance report issued by the United Nations Environment Programme Finance Initiative (UNEP FI) analyzed 20 influential pieces of academic work and 10 key broker studies exploring links between different approaches to responsible investment and investment performance. This comprehensive review found that SRI investment strategies are competitive with non-SRI strategies from a performance standpoint. 
Additionally, numerous studies demonstrating that SRI mutual fund performance is comparable to that of non-SRI funds can be found at—a compendium of all the major academic studies on SRI.