Sustainable investing is a broad term for investment approaches that consider environmental, social and governance (ESG) factors and their impact. The category includes strategies that fall along a spectrum, with ESG Investing the most commonly used term.
ESG Investing: 3 Things to Know
1. Returns and Impact
ESG investing seeks to deliver attractive returns while evaluating, at every stage of the investment process, the long-term impact of a company’s business practices on society, the environment and the performance of the business itself.
2. Deeper Insight
The incorporation of non-financial data about ESG practices can offer deeper insight into company performance than traditional fundamental analysis alone. Today, a number of third-party firms are gathering and reporting ESG metrics from companies, and providing comprehensive ESG scoring.
3. Return Potential
According to a review of academic research on sustainable investing, high ESG ratings are correlated with a lower cost of capital, market-based outperformance, and accounting-based outperformance.1 Further, Harvard Business School found that “high sustainability” firms outperform “low sustainability” firms over the long-term, both in terms of stock market and accounting performance. They also exhibited lower volatility than the low sustainability group.2
ESG-Focused Assets Are on the Rise
- As of 2016, ESG-focused strategies represented $8.1 trillion of the $40.3 trillion in professionally managed assets in the United States.3
- Of those ESG assets, $2.6 trillion were invested in retail-focused funds, up from $1.01 trillion in 2012 and $202 billion in 2007.
Today, there are approximately 500 ESG mutual funds and ETFs, totaling $1.72 trillion in assets.
- ^Source: “Sustainable Investing: Establishing Long-Term Value and Performance,” Deutsche Bank, June 2012.
- ^Source: Robert G. Eccles, Ioannis Ioannou & George Serafeim, “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance,” Harvard Business School, 2012.
- ^Source: US SIF Foundation’s Overview of Sustainable, Responsible and Impact Investing in 2016, available at http://www.ussif.org/trends.
OppenheimerFunds is not undertaking to provide impartial investment advice or to provide advice in a fiduciary capacity.
Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value.
The stocks of companies with favorable ESG practices may underperform the stock market as a whole.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.