So You Think ESGs Underperform?

3 min readApr 19, 2021


Photo by Jp Valery

When it comes to sustainable investing a common misconception is the idea that because you are choosing stocks that have better Environmental, Social, and Corporate Governance (ESG) policies, you will be penalized for this in your return. BUT — based on historical performance we can see this to be false, and although past performance is not indicative of future returns, with current trends we are confident that this will continue to be the case.

Don’t believe us? Ok — get this. A Harvard Business School report found that if you had invested a dollar 20 years ago in a select portfolio of public companies focused solely on growing their businesses, that dollar would’ve grown to $14.46. However, if you instead invested that dollar in a portfolio of companies focused on the most important environmental and social issues while growing their businesses, the dollar would’ve grown to $28.36.

A similar trend has been seen throughout the pandemic. ESG funds saw record inflows of 45.7 billion in the first quarter of 2020, whereas the broader universe saw outflows of 384.7 billion, according to Morningstar. Many expected there to be outflows from these funds in the first quarter due to the global pandemic but investors saw the increasing importance to support companies that are putting effort into their ESG policies.

Not only is capital moving into these funds, but they are outperforming the market as well. S&P Global Market intelligence analyzed 17 ESG ETF’s and Mutual Funds and found that 14 of those ETF’s posted higher returns than the S&P 500 from January 2020 through July 31st 2020.

This same trend can also be seen through the last market correction in 2018. In February of 2018 the S&P 500 fell 7.2% in the first 9 days of the month and during that period 65% of sustainable equity funds outperformed their peers.

What all these findings and numbers boil down to is that ESG funds provide a better risk-adjusted return than the market. When investing in the market you can expect to take on some risk, and usually the more risky your bets are the more possibility for upside. With ESG funds you are taking on less risk then investing in derivatives for instance, but still seeing above average returns.

Okay, have we convinced you now? You might be wondering why may this be. The answer to that is two fold; internally, these companies are more stable as they focus on long-term durability, and externally, they are less affected by government, society and, environment changes.

Companies that are managing material environmental and social issues effectively and have strong corporate governance practices tend to be lower-volatility, higher-quality companies that hold up in difficult markets. These companies focus on things that aid their business, like wasting less water and energy, incentivizing their CEO’s to focus on the long term and providing high-quality, diverse workplaces that lead to greater employee satisfaction, retention and productivity.

3M is a great example of a company that has long understood that being proactive about environmental risk can create a competitive advantage. Since the creation of their “pollution prevention pays” program in 1975 they have saved 2.2 billion by preventing pollution up front through the reformulation of products, improved manufacturing processes, redesigned equipment and recycling and reusing waste from production.

We were also able to see this through the pandemic as those that invested in the stability of their companies through contingency plans, effective energy usage and employee satisfaction were able to weather the pandemic better than those that had not.

So what are you waiting for? Make the decision: move you investing strategy to a more ESG focused approach today with Arnie.

What Arnie allows you to do is take advantage of this risk adjusted return. We will create a portfolio focused on specific initiatives that you choose to not only better the world but also provide excellent returns. Check out how to get started today at Arnie.

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