Sustainable investments are the equals of their traditional counterparts. A new study has concluded that, contrary to popular belief, sustainability is no disadvantage in the management of portfolios.
Since their inception, sustainable funds have been hampered by the perception that they generate returns inferior to other types of investment. This assumption has now been contradicted by a new study carried out on behalf of the Swiss Union of Raiffeisen Banks by the Zurich firm FourA in collaboration with the Zug-based Financial Services Institute. For the first time, the returns offered by sustainable investments were evaluated at portfolio rather than individual security level, based on initial experiences with Raiffeisen Futura funds.
Launched in June 2001, the Futura funds universe is a modular system comprising Swiss equities (Futura Swiss Stock), global equities (Futura Global Stock), Swiss franc bonds (Futura Swiss Franc Bond) and foreign currency bonds (Futura Global Bond). Futura modules thus cover all the main asset classes.
Sustainable portfolios have just as much to offer
Presenting the results of the study, Christoph Müller, managing partner of FourA and the study’s author, commented that "in terms of risk and return, portfolios invested in sustainable investments (Futura funds) differ little from traditional portfolios. There is nothing to choose between them." The sustainable portfolio reacted somewhat more sharply to market volatility than its traditional counterpart, but the study concludes that sustainability in portfolio management is not a systematic disadvantage. It points out, however, that sustainable portfolios are not inherently "superior" when it comes to risk and return.
The sustainable portfolios performed well because the sustainable funds themselves produced satisfactory results overall. Over the time span of the study, the returns generated by three of the four sustainable funds were within the normal range. Even over longer periods, it emerges, sustainable investments achieve a return that is at least in line with the market, if not higher. The Dow Jones Sustainability Index backs up this conclusion. Yet according to Christoph Müller, the satisfactory results are only partly due to sustainability screening. "They also reflect the portfolio managers’ abilities," he explains.
The initial conclusions are based on the factual experience gained since the launch of the Futura funds in summer 2001. The study covered the period from June 2001 to the end of June 2003.
The unique Futura funds universe enables investors to construct their entire portfolio using sustainable funds, depending on their personal investment strategy. As the study shows, the ecological, social and ethical criteria used to select the Futura funds do not entail any disadvantages for investors. On the contrary, unlike equivalent traditional funds, they offer customers the opportunity to invest in our environment and help to secure its future.
Personal responsibility and sustainability
Every individual’s actions influence the economy, politics and hence the future, and the same goes for companies. That is the view of Carol Franklin Engler, Managing Director of WWF Switzerland and now a partner in the firm Vorausdenken. She believes that "only companies that operate in a sustainable way will survive." All others, she contends, will ultimately be discredited and forced to close down. Franklin argues for a more balanced approach to the requirements of the three "P’s" – People, Planet and Profit. Companies that are successful in the long term assume a social responsibility for their partners and staff (People), do business in an environmentally friendly manner by making economical use of resources and avoiding polluting the environment (Planet), and achieve at least an average Profit.