Press Release – October 2, 2023
New Scientific Beta Study Shows that Sustainable Investing Underperforms Standard Index Funds
Findings show that ‘real-world’ ESG performance is unremarkable
A new study from Scientific Beta, entitled “Sustainability Alpha in the Real World: Evidence from Exchange-Traded Funds,” assesses the performance of sustainable investing from a value-weighted portfolio of exchange-traded funds (ETFs) that follow systematic Environmental, Social, and Governance (ESG) investing strategies in the US equity market.
The study finds that sustainable investing did not deliver higher returns than standard index funds. Widely commented periods of outperformance, such as the year 2020, can be explained in large part by industry effects, such as a tilt towards technology stocks. Over the past decade, such periods of outperformance are offset by corresponding periods of underperformance, leaving ESG investors with returns of -0.2% compared with the market index and -0.7% compared with a benchmark with matching industry exposure.
Commenting on the study, Felix Goltz, co-author, and Research Director at Scientific Beta, said, “For investors looking to integrate ESG objectives in their investment process, it is crucial to question what impact this would have on their portfolio’s financial performance. The existence of numerous methodologies to integrate sustainability, which may not be representative of actual practice, has made it challenging to assess this impact empirically. Our study provides an assessment of the ‘real-world’ performance of sustainable investing, drawing on information from the market of exchange-traded funds. We encourage investors to consider such ‘real-world’ results and be aware of the limitations of analysis that selects particular funds or creates stylised strategies that may not reflect the real world of sustainable investing.”
The Scientific Beta study can be accessed here:
About Scientific Beta:
Scientific Beta aims to be the first provider of a smart factor and ESG/climate index platform to help investors understand and invest in advanced factor and ESG/climate equity strategies. Established by EDHEC-Risk Institute, one of the top academic institutions in the field of fundamental and applied research for the investment industry, Scientific Beta shares the same concern for scientific rigour and veracity, which it applies to all the services that it offers investors and asset managers.
On January 31, 2020, Singapore Exchange (SGX) acquired a majority stake in Scientific Beta. SGX is maintaining the strong collaboration with EDHEC Business School, and principles of independent, empirical-based academic research, that have benefited Scientific Beta's development to date. Since 2015, Scientific Beta has also been offering highly advanced strategies in the area of ESG and climate change, whether involving options integrated into smart beta indices or pure ESG or climate benchmarks.
As a complement to its own research, Scientific Beta supports an important research initiative developed by EDHEC on ESG and climate investing and cooperates with V.E and ISS ESG for the construction of its ESG and climate indices.
Scientific Beta, 2 Shenton Way, #02-02, SGX Centre I, Singapore 068804. For further information, please contact:
contact@scientificbeta.com, Web: www.scientificbeta.com
