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The upside of sustainable investing in a down market

ImpactAlpha, March 12The growth in impact investing and sustainable finance has corresponded to an historic bull market. As markets tumble into bear territory, investors want to know: How are sustainable funds weathering the coronavirus correction?

“Concerns over performance of ESG funds in down markets appear to be unfounded,” notes Morningstar’s Jon Hale. “Sustainable equity funds have weathered the downturn better than equity funds overall.”

Sustainable equities outperform. Hale compared one-week and year-to-date returns of all 203 U.S. sustainable equity open-end and exchange-traded funds with those of their peer groups in an updated post. For the week of March 2-6, the returns of almost 70% of sustainable equity funds ranked in the top half of their respective Morningstar categories. More than 40% ranked in their category’s top quartile.

Broadening the analysis to the year through March 6, Hale found nearly three-quarters of sustainable equity funds ranked in the top half of their category, while nearly half ranked in their category’s top quartile. Hale’s analysis of passive ESG funds versus conventional index funds yielded a slightly more mixed picture.

Impact alpha. An analysis of share prices in France from Feb. 19 to March 9 by the Canadian impact-ratings company Impak suggests “that companies who really integrate the Sustainable Development Goals in their strategy could not only over perform in a bull market but also be more resilient in a bear market.”

Impak found that the average share price of Schneider Electric, Legrand and Danone, the three companies with the top “impak scores,” outperformed the French CAC 40 index as a whole. The three companies with the worst impak scores, TechnipFMC, Total and Pernod Ricard, underperformed. “This could be an early indication of the existence of impact alpha,” writes the Impak team.

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