MSCI finds ESG indices outperform broader indices

26 June 2020

Responsible investment indices outperformed their non-responsible counterparts during the first quarter of the year, according to MSCI.

Looking at performance from 1 January -30 March, 2020, the index provider compared select MSCI ESG indices to the MSCI All Country World index (ACWI) and found all four outperformed.

It said a large part of their outperformance was due to a “systemic tilt” towards higher ESG-rated stocks.

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Within global markets, emerging markets saw a stronger decline during the quarter than developed markets, with Europe faring the worst in developed markets.

MSCI described the market downturn caused by the COVID-19 pandemic, which began in mid-March, was the “first real-world test” for these ESG indices since the 2008 Global Financial Crisis.

 “Although the current conditions have only existed for a few months, we observed a positive performance contribution from ESG across four select MSCI ESG indexes (representing tilt, optimisation and best-in-class selection approaches) and across some regions during Q1 2020.

“These results were consistent with long-term performance. As the coronavirus pandemic continues to test markets, we will continue to monitor how these ESG indexes perform.”

This was echoed by research by Morningstar which confirmed a majority of sustainable funds outperformed their traditional peers over multiple time horizons. This continued during the pandemic with sustainable funds seeing excess returns of 0.09% - 1.83% in the first quarter of 2020.

Commenting on the research, the Responsible Investment Association of Australasia (RIAA), said: “In addition to its devastating death toll, the COVID-19 pandemic has resulted in significant economic turmoil, having wide-ranging and severe impacts on many people’s livelihoods and financial markets globally. These include substantial stock market declines and many countries entering into a recession.

“Responsible investing, including the consideration of ESG factors such as these, helps investors identify a broad array of themes that are influencing markets and returns, and provides an important means for investors to navigate turbulent times; to avoid the most significant risks and to capture more opportunities.




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