Sustainable funds offer downside protection, investors say

By Ross Kerber

BOSTON (Reuters) - Using environmental, social or governance (ESG) factors to judge securities can offer protection against losses, helping drive the growth of the sector, several large investors said on Tuesday.

A recent study by Morgan Stanley (NYSE: MS) of 11,000 investment funds found little difference in performance between those with traditional strategies and those with so-called sustainable strategies, said Audrey Choi, the Wall Street bank's chief sustainability officer.

But the latter group faced significantly less volatility. "I've never really met any investor who says I don't want that investment that has the same return and less downside volatility," Choi said, speaking at Reuters' two-day ESG Investment North America conference.

Sustainable funds are on pace this year to roughly double their record inflow of $21.4 billion in 2019, according to researcher Morningstar Inc, (NASDAQ: MORN) a shift driven by superior performance.

Currently about 25% of assets under professional management in the U.S. are run with some regard for sustainability factors, Choi said, up from 10% a decade ago, and globally the share is even higher.

Leslie Samuelrich, President of Green Century Capital Management, an $800 million investment firm in Boston, said the growth of data reporting on topics like carbon emissions or human capital management can help investors avoid problem holdings.

"ESG data is a way to enhance your risk assessment and protect against the downside," she said.

Also on the panel was David Burt, founder and CEO of DeltaTerra Capital, a research firm helping clients evaluate climate risk exposure such as on real estate portfolios.

Burt said the valuation of many assets will depend on how climate risks evolve, informed by data and models from sources like the Intergovernmental Panel on Climate Change. "The investment industry is really just now beginning to grapple with this problem," Burt said.

(Reporting by Ross Kerber; Editing by Aurora Ellis)

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