Are sustainable indices resilient during market corrections?

During the Coronavirus crisis, sustainable solutions have proven their value.

25 May 2020
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Most ESG indices outperformed broad markets during the Coronavirus crisis. The outperformance was higher for ESG indices that apply stricter ESG criteria. For example, the MSCI World SRI 5% Capped Index had a relative return of +257 bps in Q1 2020. These results indicate that sustainable investing can help investors reduce risks within their portfolios. It supports the hypothesis that ESG portfolios are more resilient to economic shocks because companies with strong ESG profiles can better adapt and respond during crises.

The good relative performance of ESG indices during the Coronavirus period is not an exception, but has become a pattern seen through previous downturns. We examined historical performance of MSCI SRI indices during each market correction since 2007 when the stock market fell by more than 15%. We found that SRI indices generally mitigated the drawdowns relative to broad markets. This means that sustainability can improve the ESG profile of a broad diversified portfolio, while at the same time reducing downside risks and improving performance.