Making a difference

The practice of integrating ESG issues into investment research has evolved significantly from the days of merely excluding companies on the basis of moral values. As ESG investing becomes more widespread, it's having a greater impact on both ESG issues and financial returns.

ESG investing has become mainstream investing

ESG investing used to be considered a niche market. No longer. Over the past 20 years, it's grown from 55 funds that mostly excluded polluting corporations to more than 900 funds representing a diversity of approaches.

ESG investing has grown in both its influence and its assets under management.

Source: "Report on US Sustainable, Responsible and Impact Investing Trends 2014," The Forum for Sustainable and Responsible Investment, 2015. Please not that ESG funds include mutual funds, variable annuity funds, closed-end funds, exchange-traded funds, alternative investment funds, and other pooled products but exclude separate account vehicles and community investing institutions. 

It's making a difference

The percentage of business executives who recognize sustainable practices as being important to their shareholders has more than doubled in recent years as more investors raise ESG issues through shareholder proposals.

Source: "Investing for a Sustainable Future," MIT Sloan Management Review in collaboration with The Boston Consulting Group, 2016.

It does not mean sacrificing performance

One early criticism of ESG investing was that eliminating certain stocks would hinder performance. However, investment results suggest otherwise. Moreover, academic research has found that the high sustainability companies have outperformed low sustainability companies in terms of both stock market performance and return on equity.

Source: "The Impact of Corporate Sustainability on Organizational Processes and Performance," Eccles, Ioannou, and Serafeim, 2013.

Large company stocks could fall out of favor. The stock prices of midsize and small companies can change more frequently and dramatically than those of large companies. Foreign investing, especially in emerging markets, has additional risks, such as currency and market volatility and political and social instability. A portfolio concentrated in one sector or that holds a limited number of securities may fluctuate more than a diversified portfolio. Hedging and other strategic transactions may increase volatility and result in losses if not successful. Illiquid securities may be difficult to sell at a price approximating their value. Fixed-income investments are subject to interest-rate and credit risk; their value will normally decline as interest rates rise or if an issuer is unable or unwilling to make principal or interest payments. Mortgage- and asset-backed securities may be sensitive to changes in interest rates and may be subject to early repayment and the market’s perception of issuer creditworthiness. Municipal bond prices can decline due to fiscal mismanagement or tax shortfalls, or if related projects become unprofitable. The interest earned on taxable municipal securities is fully taxable at the federal level and may be taxed at the state level. Liquidity—the extent to which a security may be sold or a derivative position closed without negatively affecting its market value, if at all—may be impaired by reduced trading volume, heightened volatility, rising interest rates, and other market conditions. Fund distributions generally depend on income from underlying investments and may vary or cease altogether in the future. The funds' ESG policy could cause them to perform differently than similar funds that do not have such a policy. Please see the funds' prospectuses for additional risks.


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