Emerging market investment portfolios would benefit from a fossil fuel exclusion policy, while for developed markets there was no significant impact of switching to a green investment policy, according to a new research paper.
Emerging markets’ investment portfolios could have increased returns by 1.1-1.2% each year between 2004 and 2015, noted the paper, from the UK’s Warwick Business School and Newton Investment Management, in association with Bank of New York Mellon.
“In contrast for developed markets, there was no significant impact of fossil fuel screens on portfolio returns, volatility, and income over the course of the study,” noted the research, by Warwick academics Chendi Zhang and Lucius Li.
The study covered 10,059 stocks in 28 developed and emerging markets and 1,283 bond issues in the US, looking at returns, volatility and income from January 2004 to July 2015.
The broader ethical investment brief included “sin screens” including adult entertainment, alcohol, gambling, tobacco, and weapons; fossil fuel screens involved coal, oil and gas investments.
“Ethical investing is now a mainstream issue,” said Rob Stewart, portfolio manager at Newton.
“Institutions, charities and faith-based investors are adopting more ethical investment approaches to ensure their capital is aligned with their mission, and investment managers are being challenged to meet this growing demand,” said Stewart.
He noted a lack of suitable recent research into the field, suggesting the study as a “sensible starting point” for ethical decision-making within asset management strategies.
“The report highlights a number of points, but, importantly, it clearly demonstrates that the impact of ethical exclusions varies considerably over time, by region and by restriction. Investors need to be aware of these variables and factor it into their decision-making when debating how to implement an ethical investment strategy,” said Stewart.
“The social and political pressures that have brought about the move towards ethical investing seem to be well entrenched. We believe that this is a topic that will be of increasing importance for trustees, their advisors and investment managers,” he added.
The full report can be found, here.