A persistent knock on environmental, social and governance investing is that by excluding some sectors or companies, an investor’s performance suffers.
That belief persists despite numerous studies that show ESG funds and ESG indexes can outperform the broad market. Recent research by Morningstar shows 57 of 65 ESG indexes, or 88%, outperformed their broad-market equivalents for the five years through the end of 2020; additionally, 91% of ESG indexes lost less than their broad-market equivalents during down markets over the past five years, including 2020’s first-quarter bear market.
A part of that outperformance derives from ESG funds’ traditional tendency to have a heavier weight to technology. Tech usually has lower ESG risks because most tech firms aren’t big emitters of greenhouse gases or have other financially material environmental risks.
That is changing with the launch of a fund that closely tracks the…