But over a longer time frame, the picture changes. Data provided by Morningstar Inc. shows that, over the past five years, US investors exposed to ESG strategies did better than those who weren’t, generating returns that were consistently between one and seven percentage points higher.
For the pensions industry, “it’s meaningless to focus on short-term performance,” Leppala said. “We have long-term liabilities and therefore these kinds of short-term gains from the speculative energy market are not for us.”
Data compiled by Bloomberg suggests that ESG indexes have generated higher returns and less volatility than traditional stock market benchmarks since 2020. The total return of the Bloomberg ESG Index is more than six times greater than the largest exchange-traded fund investing in traditional energy since 2014. Over five years, ESG gained 73%, while fossil-fuel produces added 57%.
“If you don’t take ESG into consideration, then you increase the risk that you are not able to pay for pensions policyholders,” Leppala said.
For those designing the principles guiding ESG investing, protecting savings has always been an essential element.
“The fiduciary debate is at the very, very core” of how ESG is viewed, said Helena Viñes Fiestas, rapporteur of the EU Platform on Sustainable Finance and a member of the United Nations Secretary General High-Level Expert Group on net-zero pledges.
“If you think about the whole movement of ESG, it is in a way questioning the current economic model and saying, ‘Look, it’s no longer finance on one hand and environmental and social aspects on the other, it has to be unified,’” she said.
--With assistance from Saijel Kishan.
This article was provided by Bloomberg News.