Today, the most common way to achieve sustainable and green investments is to opt for SRI investment funds ( Socially Responsible Investment ). They have the advantage, just like traditional funds, of being able to be invested in your life insurance, your PEA or your securities account.
The first SRI funds appeared in the 1970s, but remained confidential until the 1990s. They are now widespread. At the end of 2017, SRI investments totaled more than € 1 trillion in assets in France and more than € 30 trillion in the United States. By choosing this type of fund you finance companies that have a development policy that respects the environment. Nevertheless, as with any investment, there is the question of its performance. However, the history of SRI funds is now long enough to reliably measure their performance and to have the opportunity to compare it to that of traditional funds.
Read also: the operation of the rating agencies of the ESG criteria
Several studies have been conducted to measure the performance of green and socially responsible investment funds and all go in the same direction: the use of responsible investment criteria is neutral on performance. In some cases, these criteria even have a positive impact on performance.
Yet this empirical result is counterintuitive. It even goes against the financial theory. By excluding certain companies from their investment universe, for ethical reasons and not for financial reasons, such as those selling arms or tobacco, these funds are depriving themselves of potentially performing financial securities.
To be sure of their claims, researchers have compiled more than 80 economic studies on the subject allowing to have a global vision on all asset classes (stocks and bonds) and on all areas geographical. The authors of this meta-analysis conclude: “There is no performance penalty for investments made on the basis of ESG (Environmental, Social and Governance) criteria”.
It is also possible to measure the performance of eco-responsible investments based on that of the SRI indexes that have been developing for several years. These indices function as traditional indices except that they filter certain companies according to environmental and social criteria. Comparing these SRI indices to traditional indices, we realize that there is no penalty for ecological and responsible investment.
As an example, the evolution of the price of the Euro Stoxx 50 index and its SRI equivalent, the Euro Stoxx ESG Leaders 50 indicates that the latter is more efficient although very strongly correlated to the standard index. This observation is identical to that which could be made for the equity indices of the main geographical areas.
Compared performances of the Euro Stoxx 50 and Euro Stoxx ESG Leaders 50 index
There are several methods of investing SRI. The most common is the so-called “best in class” method, which consists in selecting, in each sector of activity, the best-rated companies in terms of ESG criteria . On the other side of the spectrum, so-called exclusion methods will voluntarily exclude sectors considered as harmful. If today, most funds use a combination of exclusion and inclusion with an emphasis on the latter, it has been shown that purely exclusion methods are, they, detrimental to the performance because too restrictive on the investment universe.
If the exclusion method is less efficient it is because it strongly reduces the diversification of the fund. The same is true for thematic methods, which, for example, will invest only in renewable energies or in companies specializing in water treatment. By focusing on a specific industry, these methods reduce the number of companies invested and increase the impact of a failure on one of your investments. They expose you to a sectoral macroeconomic risk, which could harm all companies of the fund and deprive you of successful companies, whose impact on the environment is positive but whose economic activity is different.
On the whole, SRI funds perform just as well as traditional funds. On the other hand, as we have seen, some funds may lack diversification. In building your portfolio, care must be taken to maintain a good level of diversification:
In order not to have an exposure to the equity market exclusively, know that there are also SRI bond funds or “Green bonds”. Note that to achieve such an investment, the PEA is not suitable. On the other hand, some life insurance and some securities accounts offer a range of SRI investments large enough to meet these prerequisites.
To know how to choose the right tax envelope .
As with conventional funds, attention should be paid to management fees and potential entry fees or outperformance fees. These fees reduce the performance of the fund accordingly. In this sense, index management, ie the use of ETFs (also called trackers) is more efficient than traditional management. Fortunately, in recent years the SRI ETFs have become more democratic and it is now possible to design a globally diversified allocation made up of ETFs only, the fees of which will not exceed 0.4% annually (compared to 1% to 2% for traditional funds). . So all the tools exist to reconcile financial performance and ecological and social performance of your investments.
To find out why ETFs are preferable to traditional funds .
Nalo is an investment company dedicated to individuals. When we support you, you can choose an eco-responsible investment portfolio composed exclusively of ETF SRI. For you, we take care of implementing an investment strategy that corresponds to your objectives and your heritage environment.
Your investments are realized within a life insurance in order to profit from a favorable taxation .
You can make a free investment simulation on our website .