Banking Exchange Magazine Logo

Why Investors Still Back SRI Despite Pandemic

Behavioral research from Morningstar reveals that investors still want to allocate to sustainable funds despite the challenges of Covid-19

  • |
  • Written by  Banking Exchange staff
  • |
  • Comments:   DISQUS_COMMENTS
Why Investors Still Back SRI Despite Pandemic

New research from Morningstar has shown that investors are still keen to support socially responsible investing strategies despite the challenges of the Covid-19 pandemic.

Demand for sustainable investments has pushed assets under management in mutual funds and exchange-traded funds exposed to these themes to new records, especially as investors have sought to buy in to a potential ‘green recovery’.

Morningstar fund flows data showed that second quarter net flows into US sustainable funds hit $10.4 billion, and $20.9 billion for the first half of 2020 – not far off the annual total for 2019 of $21.4 billion.

However, some are still skeptical of the benefits of SRI and other types of sustainable investing. The Department of Labor is attempting to reduce the ability of pension fund fiduciaries to invest according to SRI criteria.

Samantha Lamas, a behavioral researcher at Morningstar, said the group’s work had found that “interest in ESG investing can take the heat” of market volatility and was not a “fickle” trend.

Over four days at the end of March, Morningstar asked 626 people to select from 15 investments for a hypothetical new retirement account.

The investors were split into three groups: the first had basic name, style, performance and fee data; the second had the same information plus Morningstar’s sustainability rating, and the third were also asked to fill out an ESG questionnaire before being given the same information as the second group.

Lamas highlighted the Royce Special Equity fund, which has a top sustainability rating but relatively low five-year returns. The group without sustainability information “largely ignored” the fund, Lamas said, but the other groups invested substantially more.

Overall, the results showed that individuals in the second and third groups – who had access sustainability information – “increased the average sustainability rating of their portfolios by a statistically significant amount” compared with the first group, by investing more into funds that were highly rated for ESG criteria.

Morningstar found that the allocations made by investors in the second and third groups “were less correlated with returns overall”, implying that buyers took more interest in sustainability criteria and less in historical performance.

“This research suggests that even during a pandemic and extreme market volatility, investors continue to be interested and swayed by ESG information,” Lamas said. “In other words, interest in ESG investing is not going anywhere, and investment professionals would be well-served by incorporating it into their practices.”

The research follows a study by Barclays Capital, published earlier this month, which found negligible difference between fund holdings in dedicated ESG funds and those of non-ESG US equity funds.

back to top


About Us

Connect With Us


Webinar: Real-Time Payments in the U.S. Market

Time/Date: June 16, 2021 2:00 p.m. ET

The U.S. has come a long way in its journey to real-time payments, with TCH and Zelle in market and FedNow just around the corner. COVID-19 has accelerated that demand to move to real-time. Yet many financial institutions remain unconvinced of the need to move, with less than 3% of financial institutions signed up today.

In this Banking Exchange hosted webinar Celent’s Gareth Lodge, Senior Analyst, Global Payments, and Alacriti’s Mark Ranta, Payments Practice Lead, discuss the findings in the Celent research report, Real-Time Payments in the US Market: Speeding Up or Slowing Down? A Call to Arms.


This webinar is brought to you by:
Alacriti logo