Some high-profile sustainable investment sectors underperformed in 2022.
- Sustainable investments underperformed in 2022, missing the energy rally and were stung by the tech selloff.
- The S&P Clean energy index is down 2% year-to-date, against a 50.7% rally in the S&P energy index.
- Buffeted by both tech pain and zero-COVID, Chinese EV pureplay automakers have declined by an average of 65% year-to-date.
But the volatility says more about diversification than sustainable investing itself.
- 2022 growth sector volatility shows why investors need portfolio diversification, including within sustainability allocations.
- ESG Leaders, which has performed in past years, lagged its benchmarks in 2022 primarily due to underallocation to traditional energy.
- Investors seeking more consistent performance should be selective, but not actively exclude pollutive or ESG laggard sectors.
So we think companies that deliver on sustainability can deliver long-term financial results, too.
- We maintain a positive view on the long-term prospects of companies whose products and services address environmental and social challenges.
- At the index level, ESG Improver equities have outperformed broad equity markets by nearly 2 percentage points a year over the past five years.
Did you know?
- Governments have made strong capital commitments toward sustainable goals, including the EUR 300 billion REPowerEU and the USD 370 billion US Inflation Reduction Act.
- ESG improvers and engagement approaches recognize that key sustainable secular trends like the transition to a low-carbon economy will not happen overnight and will require participation from companies across all sectors and industries.
- Watch our Deep Dive video on investing sustainably.
The long-term performance of sustainable investments remains strong on an absolute and relative basis, despite underperformance in the past year. We prefer companies with credible decarbonization targets, those making active progress toward diversification into lower-carbon energy sources, and those seeing meaningful improvements on social issues.
Main contributors - Jon Gordon, Antonia Sariyska, Andrew Lee, Amantia Muhedini
Content is a product of the Chief Investment Office (CIO).
Original report - Is sustainable investing still a good strategy?, 18 November 2022.