Are Sustainable Funds More Expensive?
Socially responsible investing doesn't have to cost more.
Socially responsible investing, also known as sustainable, impact, or ESG (environmental, social, and governance) investing, has been steadily growing in popularity in recent years. A year ago, we launched the Morningstar Sustainability Rating for funds to help investors measure to what extent any mutual fund's portfolio aligns with ESG principles.
One concern that frequently arises among those new to this type of investing is performance, specifically whether investors have to sacrifice returns if they invest sustainably. Many people have assumed that the answer must be yes, but in fact there is no good evidence of any significant performance difference between sustainable and nonsustainable mutual funds, as Morningstar director of sustainability research Jon Hale has noted in a couple of recent studies. Similarly, an article from 2012 surveys the academic literature showing no significant performance penalty for sustainable funds.
David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.