09.21.2020

Morgan Stanley: Sustainable Funds Outperformed In First Half

  • Analysis of U.S. equity and bond funds found that sustainable funds have weathered the COVID-19 pandemic better than their traditional counterparts during 1H 2020
  • These findings provide further evidence that sustainable investing does not require a financial trade-off

Sustainable investing funds can outperform traditional funds and reduce investment risk, according to a new Sustainable Reality report published today by the Morgan Stanley Institute for Sustainable Investing (The Institute). In the first half of 2020, the COVID-19 pandemic induced a global recession, causing capital markets around the world to experience the sharpest shock in their history, followed by months of severe volatility. This analysis of U.S. equity and bond funds found that sustainable funds weathered this difficult period better than their  traditional counterparts.

Key Findings

In January-June 2020:

  • U.S.-based sustainable equity funds outperformed their traditional peers by a median of 3.9%.
  • U.S.-based sustainable taxable bond funds outperformed their traditional peers by a median of 2.3%.

“This analysis adds yet another proof point to the fact that sustainability considerations can be material to investment and business decisions, even in the most volatile and uncertain markets” said Audrey Choi, Morgan Stanley’s Chief Sustainability Officer and CEO of the Institute for Sustainable Investing. “This mounting evidence will no doubt continue to encourage investors to include positive environmental and social impact in their decision making.”

These findings build on the Institute’s 2019 report, “Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds”which found that in any given year during the 2004-2018 evaluation period, sustainable funds performed in line with traditional counterparts but provided more downside protection, especially in times of volatility.

“So far in 2020, we have witnessed unprecedented challenges in the capital markets, but sustainable investments have continued to perform well in this environment,” said Matthew Slovik, Head of Global Sustainable Finance at Morgan Stanley. “This reinforces the value of sustainable investing and further dispels the myth that investors seeking to drive positive environmental and/or social impact must accept a financial trade-off.”

These findings were compared to our 2019 report, which assessed sustainable funds’ historical performance against traditional funds from 2004-2018 using Morningstar data. Institute analysts applied the same methodology to evaluate the performance of U.S.-domiciled sustainable funds investing in U.S. equities and taxable bonds active in 2019 against their traditional peers. Analysts then examined the performance of the same asset classes in the first half of 2020 when the coronavirus pandemic induced significant volatility in the capital markets.

To read more about the Morgan Stanley Sustainable Realities paper and the findings, please visit the Morgan Stanley Institute for Sustainable Investing.

Source: Morgan Stanley

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