For decades, sustainable investing has been the subject of academic research. Much of this research focuses on the relationship between environmental, social and governance (ESG) criteria and companies’ financial performance. Many studies point to returns that are comparable to—or even better than—those of non‑sustainable investments.
A well‑known study from 2015 by researchers Friede, Busch and Bassen reviewed more than 2,000 academic papers and concluded that sustainable investing does not come at the expense of returns. Around 90% of the studies found no negative impact of applying ESG factors on financial performance, while a clear majority showed a positive effect.
The International Monetary Fund (IMF) also concluded that there is no evidence that sustainable investment funds consistently perform better or worse than the market average. While there have been periods in which sustainable portfolios underperformed, these were offset in later years. The IMF further noted that the costs of sustainable investment funds are broadly comparable to those of traditional funds.
"}},{"componentType":"sectionTitle","title":"Sustainable index outperforms the traditional index"},{"componentType":"paragraph","richBody":{"value":"The chart below also shows that sustainable investing doesn’t necessarily come at the expense of returns. It compares the global equity index with the sustainable equity index (SRI stands for socially responsible investing and is the commonly used benchmark for sustainable equities) over the past ten years. We can’t say for certain whether this is due to the growing popularity of sustainable investing, but it’s notable that in recent years the sustainable index has outperformed the traditional equity index.
Selecting sustainable equities can lead to underweighting or overweighting certain sectors or factors compared with, for example, the global index. This can affect both the return and the risk of an equity portfolio. In 2022, for instance, oil prices rose sharply, causing the energy sector (including oil companies) to perform above average on the stock market. Because this sector has a much smaller weighting in the SRI index than in the traditional index, the SRI index temporarily lagged behind the traditional global index that year.
"},"alignedImage":{"position":"bottom","transformBaseUrl":"https://assets.ing.com/transform/26f298c5-7503-4575-8878-dccae927f4c2/Aandelen-MSCI-AC-World-SRI-vs-MSCI-AC-World","altTextNL":"MSCI World vs MSCI World SRI","original":"https://assets.ing.com/m/2115547b47adcd7d/original/Aandelen-MSCI-AC-World-SRI-vs-MSCI-AC-World.png","extension":"png"}},{"componentType":"sectionTitle","title":"Sustainable investing is gaining popularity"},{"componentType":"paragraph","richBody":{"value":"Despite the perception that sustainable investing may come at the expense of returns, this form of investing has grown strongly in popularity in recent years. Over the past decade, the amount invested sustainably has increased steadily, accelerating even further in recent years. According to the Global Sustainable Investment Alliance, as much as $30.3 trillion was invested sustainably worldwide in 2022—around 24.4% of total global invested assets.
"}},{"componentType":"sectionTitle","title":"Demand for sustainable investments can support market valuations"},{"componentType":"paragraph","richBody":{"value":"We have every reason to believe that sustainably invested assets will continue to grow in the years ahead. Governments are helping to accelerate this trend in order to meet the goals of the Paris Climate Agreement. For example, the European Commission aims to encourage investors—through new legislation—to allocate more capital to sustainable activities. This makes it easier for sustainable companies to raise funding for responsible growth. If these companies grow faster as a result, investors are likely to take notice, potentially increasing demand for such investments. Greater demand can have a positive impact on company valuations.
Europe isn’t the only region driving this transition. In 2022, the US government announced the Inflation Reduction Act, committing $369 billion to clean‑energy technology and other measures to reduce CO₂ emissions. Listed companies active in these areas are expected to benefit from these investments.
While quarterly results are an important indicator of how a company is performing, more and more investors recognise that companies can also create value in non‑financial ways—and, in doing so, build shareholder value over the long term. This makes it increasingly important for companies to invest in cleaner or more energy‑efficient production processes, or in a more diverse workforce.
These investments may involve costs in the short term, but over time they can lead to higher profits or a competitive advantage. Companies that aim to make a more positive contribution to people, the environment and society are challenged to be innovative and creative—with clear benefits as a result. Investors value companies for their ability to create sustainable shareholder value. In our view, companies with a strong focus on sustainability will ultimately rise to the top.
"}},{"componentType":"sectionTitle","title":"Also read"},{"componentType":"paragraph","richBody":{"value":">More articles about sustainable investing
"}},{"componentType":"sectionTitle","title":"Good to know"},{"componentType":"paragraph","richBody":{"value":"Investing involves risks and costs. You may lose all or part of your investment. Read more about the risks of investing.
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