5 Myths About ESG, Debunked?
"Environmental, Social and Governance (ESG) investing is frequently misunderstood. Here are some things to consider when separating fact from fiction."
Mary Jane McQuillen
Managing Director, Portfolio Manager and Head of ESG Investment
MYTH: ESG strategies lag behind
The Real Deal? Numerous academic and industry studies have shown that an ESG investing approach can keep pace with the market - or even outperform.1
MYTH: ESG is about weeding out "sin stocks"
The Real Deal? When "socially responsible investing" first came on the scene, it often involved passive screening to avoid alcohol or gambling stocks. Today, all three of the words in the acronym — environmental, social and governance — matter.
MYTH: ESG is just the latest trend
The Real Deal? ESG investing is not just a short-term fad; it's been on the rise for many years. It currently captures more than $1 of every $6 in U.S. assets under management — representing an increase of 76% over five years.2
MYTH: ESG strategies don't really change company behavior
The Real Deal? Managers of ESG strategies influence corporate behavior in a number of ways, including stock ownership, active engagement on ESG issues, adopting ESG-related shareholder resolutions, and publicizing ESG best practices.
MYTH: Investing solely in ESG strategies limits your potential
The Real Deal? It's becoming easier to build an entire asset allocation consistent with ESG principles, including public and private equity, fixed income and alternative assets.
Past performance is no guarantee of future results. All investments involve risk, including loss of principal. Equity securities are subject to price fluctuation and possible loss of principal. An Environmental, Social and Governance (ESG) investment strategy may limit the types and number of investment opportunities available to the fund and, as a result, may underperform strategies that are not subject to such criteria. Statements made in this material are not intended as buy or sell recommendations of any securities. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed-income securities falls. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
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1 Performance Studies: Gunnar Friede, Timo Busch & Alexander Bassen (2015) ESG and financial performance: aggregated evidence from more than 2,000 empirical studies, Journal of Sustainable Finance & Investment, 5:4, 210-233, DOI: 10.1080/20430795.2015.1118917 http://www.tandfonline.com/doi/pdf/10.1080/20430795.2015.1118917 Sustainable Reality: Understanding the Performance of Sustainable Investment Strategies, March 2015, http://www.morganstanley.com/sustainableinvesting/pdf/sustainable-reality.pdf
2 The Forum for Sustainable and Responsible Investment 2014 Report on U.S. Sustainable, Responsible and Impact Investing Trends. The report indicates that $6.57 trillion, or one in every six dollars (16.6%) in U.S. AUM, is invested in sustainable, responsible and impact investment strategies.
Mary Jane McQuillen is a Portfolio Manager and the Head of ESG Investment at ClearBridge Investments, a Legg Mason affiliate. Her opinions are not meant to be viewed as investment advice or a solicitation for investment. © 2017 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC and ClearBridge Investments, LLC are subsidiaries of Legg Mason, Inc. 724629 ETFF373518 5/17
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