Exclusive: ethical investments beat sinners 3% as stock market collapsed

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Ethical investments have proved far more resilient to the stock market meltdown than traditional ones, figures showed today.

Data from Morningstar studying ESG (Environmental, Social and Governance) funds uncovered stark outperformance during the Covid-19 market rout.

Figures compiled for the Evening Standard revealed that, when investing in big London-listed companies, last month's falls for actively managed ESG funds (where fund managers pick specific stocks rather than just follow an index) were 14% compared with nearly 17% for traditional ones.

Extrapolated across the market, that outperformance suggests green and socially conscious investors potentially saved billions of pounds of paper losses.

Separately, Morningstar compared ESG exchange traded funds — which hold a basket of shares — with conventional ones. It found 80% outperformed peers in global large company funds and 77% in European ones.

The company said: “It is important to remember how ESG and sustainable investing creates natural biases away from companies deemed as high risk on various measures.”

On both categories, ESG funds beat rivals by consisting of more companies with “robust underlying earnings” that proved more resilient to the collapse.

Such companies are generally expected to fare better during the turbulent months to come.

The figures were based on rolling monthly returns up to March 20.

In the US sector, where 64% of ESG ETFs outperformed, Morningstar noted many companies within the funds were relatively undervalued before the crisis. ESG funds had tended to avoid overvalued "bubble" stocks which fell the hardest as the bear market gripped.

The Evening Standard figures showed passive ESG funds outperformed non-ESG markedly less than actively managed ones. Where active ESG funds fell 14% compared with active non-ESGs' 16.8%, passive ESGs fell 14.6% compared with passive non-ESG's 14.8%.

Volatile markets are supposed to suit actively managed funds better than passive ones, which have consistently fared better during the lengthy bull market. However, Morningstar's figures showed that, on non-ESG, passives continued to beat actives in March.