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Sustainable & Ethical Investment funds in Spain

By Chris Burke - Topics: ESG Funds, ESG investing, investment diversification, Investment Risk, Spain
This article is published on: 25th April 2022

More and more people are contacting me regarding sustainable investments in order to understand the choices available, whether they offer a good return on your investment and would you get any more return if you didn’t invest sustainably/ethically? We all know the planet needs our help but we also want to know that our hard-earned monies are working for us – it can be a difficult emotional trade off.

Sustainable & Ethical investing has hit the world by storm over the last few years. By the end of 2019, professionally managed assets using sustainable strategies grew to $17.1 trillion, a 42% increase compared to two years prior, according to the U.S. SIF Foundation (2021). The organization also estimated that $1 out of every $3 under professional management is now invested under ´´sustainable practices´´.

Recent studies have also shown that Sustainable Investment funds, as well as providing ways to invest responsibly, provide both financial performance and lower levels of risk. For this reason, in part, many deem including sustainable investments in their portfolio is a ‘no brainer’.

Let’s say for example that you are in the market to buy a new dishwasher. You’ve analysed several products and have narrowed your choice down to the last two. Both products cost the same amount and wash dishes equally as effectively, yet one of them uses less electricity and is considered safer due to the addition of extra safety features. Which one would you pick?

ESG funds

When comparing the returns of sustainable funds and traditional funds, is there a financial trade off?
A common belief held by investors when comparing mutual funds that are performing to a similar standard is that the one with a sustainable investing model may not perform as well. However, a Morgan Stanley (2019) report has debunked this myth. The report analysed the performance of 10,723 mutual funds from 2004 to 2018 and found that the returns of sustainable funds were in line with comparable traditional funds, stating that ‘there was no consistent and statistically significant difference in total returns’.

When comparing the levels of risk of sustainable funds and traditional funds, is there a trade off?
The Morgan Stanley (2019) report found that sustainable funds experienced a 20% smaller downside deviation than traditional funds, a consistent and statistically significant finding. In years of higher market volatility (such as 2008, 2009, 2015 and 2018), sustainable funds downside deviation was significantly smaller than that of traditional funds. The study took an in-depth dive into in the last quarter of 2018 during which we saw extreme volatility in the US equity markets. Despite negative returns for almost every fund, the median US Equity sustainable fund outperformed the median US Equity traditional fund by 1.39%, and also had a narrower dispersion.

These findings may come as a surprise to many. There is a general consensus amongst investors that by investing in sustainable funds, you will also miss out on financial gains. The research based on concrete evidence of market performance over the past few years suggests that this is not the case, and that there is in fact no financial trade off when investing sustainably. Over the forthcoming years, I believe that the adoption of sustainable investments will continue and that we will continue to see the opportunity gap between investor interest and adoption narrow.

If you would like to speak with an expert on Sustainable and ESG Investments, Chris Burke is able to discuss with you the new investments in this area. Chris is also able to review your current pensions, investments and other assets, with the potential to make them more sustainable moving forward.

If you would like to find out more or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris via the form below, or click the button below make a direct virtual appointment.

Sources:
“Sustainable Investing Basics, 2021,” US SIF Foundation: The Forum for Sustainable and Responsible Investment, https://www.ussif.org/sribasics. Accessed March 24, 2022
“Sustainable Reality – Analysing Risk and Return of Sustainable Funds, 2019,” Morgan Stanley, https://www.morganstanley.com/content/dam/msdotcom/ideas/sustainable-investing-offers-financial-performance-lowered-risk/Sustainable_Reality_Analyzing_Risk_and_Returns_of_Sustainable_Funds.pdf. Accessed March 24, 2022

Article by Chris Burke

If you are based in the Barcelona/Costa Brava area and would like to have an initial, complimentary face to face video call or arrange a time to visit Chris in his office in central Barcelona, contact Chris on chris.burke@spectrum-ifa.com or whatsapp +34 689915730. If you are based in another area within Europe, please complete the form below and we will put a local adviser in touch with you.

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