More than 90% of 2,200 academic studies show that incorporating environmental, social and governance (ESG) criteria has a neutral, or positive, effect on returns, according to a 2015 study by Freide, Busch and Bassen. And since 1990, the MSCI KLD 400 Social index, which includes companies with high ESG ratings and excludes those involved in goods such as alcohol and firearms, has outperformed the S&P 500, with annualized returns of 10.7% versus 10.3%.
Investors seem to be getting that message. According to our recent UBS Investor Watch survey of wealthy investors globally, 82% said they think sustainable investment (SI) returns will match or surpass those of traditional investments. But investment rates still don’t match, with only 39% of those surveyed having included SI in their portfolios:
- Seven in 10 investors cited confusion on definitions for major SI approaches, including exclusion, integration, and impact investing strategies. When investors are “unsure of what they’re getting,” they are reluctant to commit.
- Another concern, according to our survey, is a lack of opportunities with an established track record, especially in the impact investing field. As recently as 2015 nearly 40% of the impact funds listed in the ImpactBase database didn’t have a track record to speak of. And investors are also often wary of “greenwashing.”Our survey results show that clearer information about SI is warranted. To this end, in 2017 UBS partnered with the Impact Management Project to build industry consensus around the core components of impact. We have incorporated the resulting framework into our impact assessment process for new investment opportunities. Our multi-asset SI offering includes multiple education primers and videos to help investors understand opportunities in SI.
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