Coronavirus test strengthens case for sustainable funds

Ranking of U.S. equity strategies adds to evidence of ESG’s resilience during market turbulence

Coronavirus test strengthens case for sustainable funds

While the coronavirus outbreak has inflicted widespread pain on financial markets, the damage has not been evenly distributed. Some types of investment funds have proven more resilient than others — and that includes sustainable funds.

In a new commentary, Morningstar’s head of Sustainability Research Jon Hale looked at the performance of U.S.-listed sustainable equity funds during the last week of February and for this year up to February 28.

“[C]oncerns over performance of ESG funds in down markets appear to be unfounded,” Hale said, noting how U.S. equities experienced the biggest downturn since 2008.

Hale looked at the returns of 201 sustainable equity open-end funds and ETFs in the U.S., and compared their performance with that of their non-ESG peers. He found that for the Feb. 24-28 period, returns for 58% of sustainable equity funds ranked in the top half of their respective categories; nearly a third placed in the top 25% for their categories, and only 19% were in the bottom fourth of their category.

“Broadening the perspective to the year through Feb. 28, the returns of nearly two thirds (65%) of sustainable equity funds ranked in their category’s top half,” he said. More than four tenths (43%) placed in the top 25% of their group, and only 10% were in their peer group’s bottom 25%.

The findings were similar to previous research by the firm, which found that nearly two thirds of ESG and RI equity funds were among the top half of performers for the full calendar year of 2018, a period during which investors saw extreme bouts of volatility in February and in the last quarter. And an analysis by showed that through mid-December 2018, 17 out of 26 RI and ESG ETFs had delivered better performance than the SPDR S&P 500 ETF (SPY).

Some may argue that it’s still early innings as far as a possible market downturn is concerned. But at least for now, supporters of sustainable investing may feel vindicated in their belief that ESG integration and other flavours of responsible investing will become more important in the face of market challenges. As Trevor David, CFA and associate director at Sustainalytics wrote in a March 2019 blog post:

“As a bear market increases earnings stress, it will also intensify the imperative to understand the underlying drivers of value creation such as corporate governance structures, customer loyalty and operational efficiency, which can potentially be better understood through ESG ratings.”


Want to learn more about ESG Investing? Experts will discuss issues and considerations surrounding responsible investing during the inaugural Wealth Professional Invest ESG Summit, happening on March 25.