An insight piece with Dr Alan Whittle, Resolve ESG fund consultant
Not over the long term. The weight of academic evidence – including a review of over 1,000 studies by NYU Stern – suggests ESG investing does not create a performance lag, and can improve risk-adjusted returns. Short-term divergence from an unconstrained portfolio is still normal, though.
It is the first question most people ask, and it deserves a straight answer rather than a reassuring one.
The assumption that a conscience costs you money is the single most common pushback in a sustainable investing conversation. The honest answer is more nuanced than a simple yes or no, and more encouraging than the assumption suggests.
Alan is candid that the studies do not all agree. But taken together, the weight of evidence supports a clear conclusion:
“It would seem reasonable on this compilation of evidence to say that ESG supports risk-return performance, and that over the long term there is no performance lag.”
— Dr Alan Whittle
A sustainable portfolio will not always move in step with an unconstrained one, and Alan is direct that clients should know this. But over the long term, the evidence points in a favourable direction. Companies that genuinely improve their environmental, social and governance credentials – not just carrying a score, but improving over time – have tended to perform better.
He points to analysis from NYU Stern* drawing on over a thousand studies published between 2015 and 2020.
It is worth being clear about what “credentials” means here, because ESG ratings themselves diverge, with the major agencies frequently disagreeing on the same company – which is why Resolve looks at the direction of genuine improvement rather than relying on any single provider’s score.
“Sustainability incorporating ESG is not a detractor from performance. It actually improves risk-adjusted returns, essentially.”
— Dr Alan Whittle
That phrase – risk-adjusted returns – is the heart of it. The amount of return earned for each unit of risk taken has tended to be better, over the longer term, in sustainable approaches than in unconstrained ones. That is a very different claim from promising to beat the market every year, and Alan is careful not to overstate it.
Why won’t the timing always work in your favour?
Quick answer: Because Resolve draws from a subset of the whole market, it will underperform when sectors it deliberately avoids — like oil, gas or mining – are running hot, and outperform when they’re not.
Because Resolve draws from a subset of the whole market, there will be stretches when it looks out of step. When oil, gas or mining are running hot and the portfolio is light on them by design, its performance will diverge. The reverse is also true, and this is where the discipline comes in.
“You cannot have your cake and eat it too, so to speak.”
— Dr Alan Whittle
If the returns you are drawn to are coming from the very sectors you have chosen to avoid, you cannot claim both the return and the principle. Investments at the frontier of sustainability are often smaller, growth-oriented companies, which can be more volatile — but they also grow, and get acquired, and over time the long-term case reasserts itself.
What happened to sustainable investing during 2020?
Quick answer: Many sustainability-focused businesses thrived while oil companies and airlines struggled — but the resulting rush of money pushed valuations too high, and short-term investors who chased the trend were caught out when it corrected.
The clearest illustration in recent memory is the pandemic. As oil companies and airlines struggled, many businesses in the sustainability space did the opposite.
“Those companies in areas which we would perhaps consider to be within that sustainability area, they blossomed during that period.”
— Dr Alan Whittle
There is a cautionary note inside the success story, though. So much money chased that performance that valuations ran ahead of themselves, and when the moment passed, the performance-chasers sold out — leaving longer-term investors to absorb the swing. It is a neat lesson in why chasing the trend is its own risk, and why the real case for these companies is structural, not seasonal.
Because the genuine long-term opportunity lies with the businesses solving the century’s problems: water preservation, new technologies, the innovations that earn rising valuations by bringing something new to market. That is where a sustainable portfolio concentrates – not in yesterday’s winners.
FAQs
Does sustainable or ESG investing sacrifice returns?
The weight of long-term academic evidence, including a review of over 1,000 studies by NYU Stern, suggests no – ESG-focused investing has not shown a consistent performance lag, and can improve risk-adjusted returns over time.
Will a sustainable portfolio always outperform a conventional one?
No. Because it deliberately avoids certain sectors, a sustainable portfolio will sometimes lag when those sectors are performing strongly, and lead when they’re not – the case for it is long-term, not year-to-year.
What can 2020 teach us about sustainable investing?
Many sustainability-focused businesses performed strongly while oil and airline stocks struggled — but so much money chased that performance that valuations became overheated, and short-term investors who piled in were caught out afterwards.
Disclaimers
- The value of your investments can go down as well as up, so you could get back less than you invested.
- Past performance is not a reliable indicator of future performance.
- The information here is for general guidance only and does not constitute personal financial advice. If you are unsure whether an investment is suitable for you, please speak to your Becketts adviser.
- Approved by Becketts FS Ltd 02/09/2026. Becketts is a trading name of Becketts FS Ltd, authorised and regulated by the Financial Conduct Authority (FCA No. 409051)
