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ESG hiccup: Sustainable investment losses in 2022 highlight some market realities

Until recently, strong performance of ESG investments has bolstered the argument that investors can do well and do good

Genevieve Cua

Genevieve Cua

Published Sun, Jul 17, 2022 · 03:31 PM
    • Wind turbines at the Waubra Wind Farm in Victoria, Australia. Until green energy can be produced at scale, divestment from hydrocarbons may raise energy prices for all.
    • Wind turbines at the Waubra Wind Farm in Victoria, Australia. Until green energy can be produced at scale, divestment from hydrocarbons may raise energy prices for all. BLOOMBERG

    INVESTMENTS labelled as sustainable or ESG (environment, social, governance) have suffered double-digit losses this year alongside the broader market, as a confluence of factors including higher interest rates and inflation cause a spike in risk aversion.

    Two factors are blamed for the relatively poor showing: ESG funds’ exposure to technology which has suffered a rout, and their avoidance of fossil fuel stocks such as energy, which outperformed.

    Morningstar’s US Sustainability Index has lost 21.66 per cent year to date, compared to 20.47 per cent by the S&P 500. The MSCI World ESG Index is in the red by 22.53 per cent compared to a loss of 21.91 per cent by the plain-vanilla MSCI World Index. ESG funds’ exposure to tech is relatively large at over 20 or 30 per cent because of tech’s relatively lower carbon footprint.

    Mind the GapESG

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