Asset returns that meet higher environmental, social or governance standards, known as ESG investments, are neither better nor worse than others. See the Obermatt focus markets or our thoughts on stocks and morals.
Obermatt CEO Dr. Hermann J. Stern derives the insight of return-neutrality of responsible investing from an exercise with students in the first part of his oikos conference '19 Keynote at the University of St. Gallen. Watch the video, think about how you would respond and draw the conclusion for yourself.
The rationale is as follows: If return-neutrality were not the case, i.e. if higher or lower returns were possible with certain investment criteria, then professional investors would take advantage of this, the share prices would adjust and the expected returns would again correspond to those returns that all other investments have.
If investors believe that a certain reason speaks for a higher or lower than normal return with a particular investment, then this is always a so-called contrarian opinion, thus an opinion, which is not shared by the majority of the market participants.
This opinion may or may not be correct, because the majority can still be wrong. However, there is no generally observable justification for such a statement. It is only the personal opinion of individuals.
This insight has two great advantages: Firstly, ESG investors are not "punished" with poor returns and secondly, investors lose nothing if they equip their portfolio exclusively with ESG investments; as long as it is broadly diversified, which we again and again recommend.
Recorded by Obermatt with kind permission of oikos St. Gallen, November 2019.