Ethical investing is now a driving force in the world of finance, with investors demanding high standards in environmental, social and governance (ESG) issues. However, the market remains immature, with a lack of consensus on how ESG should be defined and measured.
Every year more money flows into funds that meet ESG criteria. Total ESG assets under management (AUM) surpassed $35tn (about £26bn) globally in 2020. That was a third of overall AUM and up from $22.8tn in 2016, according to the Global Sustainable Investment Association.
At one time, the received wisdom was that profits and principles didn’t mix. However, a growing body of evidence suggests companies with good ESG practices tend to outperform their less ethical peers. Analysts S&P Global Market Intelligence tracked 27 US-based ESG exchange traded funds and mutual funds between December 2020 to May this year and found that 16 outperformed America’s S&P 500 index. The funds – which each had more than $250m in AUM – rose between 11% and 29.3% during the period versus 10.8% for the benchmark.