As FTAdviser's now closed sister-title, Investment Adviser, noted in December 2016, part of ESG's outperformance "is down to these funds’ bias towards ‘quality’ stocks, a section of the market that has flourished since the financial crisis as nervous investors sought out reliable companies."
More recently, FTAdviser title, Asset Allocator, flagged a further concern.
It said: "The world of ESG is now about much more than just negative screening. Yet the past year has seen certain ethical investment strategies opt to exclude some of the biggest growth stocks of the past decade. Increasingly, this is a complicating factor for those wealth managers who run their own specialist portfolios or buy ethical funds."
In any case, Aled Phillips, chartered financial planner and operations director at Niche, a firm which has recently set up Niche Ethical specifically for ESG and charity investment, says that regardless of whether growth or value is more attractive, the performance outlook for ESG funds is encouraging.
He says: “When you look at the evidence, it indicates that companies that show the characteristics which an ESG investor is looking for tend to be better companies, so this could actually mean that they would produce a better return during times when market growth is lower.
“These companies can demonstrate that they care about their employees, environment and the sustainability of their business model.”
Craig Rickman is a former special projects editor of Financial Adviser an FTAdviser
