Indexes which add an ESG risk or climate lens to global equity markets have bounced back in 2023, according to new analysis from Morningstar Indexes. After largely underperforming the broad market in 2022 due to overweighting of technology stocks and underweighting of energy stocks, these same allocations have helped sustainable investments year-to-date.
- The Morningstar Global Markets Sustainability Index, designed to reduce ESG risk by targeting stocks with low ESG Risk Ratings according to Morningstar Sustainalytics, has risen 10.2% relative to a 9.5% return for the Morningstar Global Markets Large-Mid Cap Index year-to-date through May 22.
- The Morningstar Developed Markets EU Climate Transition Benchmark, which incorporates Morningstar Sustainalytics climate data to help investors achieve EU CTB regulatory requirements, has returned 11.4% relative to a 10.3% return for the Morningstar Developed Markets Large-Mid Cap Index year-to-date.
- The Morningstar Global Markets Sustainability Dividend Yield Focus Index, designed to track the performance of companies with attractive dividend yields and strong financial quality with low ESG Risk Ratings according to Morningstar Sustainalytics, has risen 4.9% relative to a 0.1% rise for the Morningstar Global Markets Dividend Yield Focus Index year-to-date.
Thomas Kuh – Head of ESG Strategy, Morningstar Indexes:
“Investors use sustainable indexes for a wide range of ESG risk, climate and impact objectives, with performance usually just one consideration. And sustainable investors have a long time horizon, so short-term market movements will not alter their convictions. Having said that, many sustainable investments have bounced back this year. One common thread is sector dynamics. All of these indexes have relatively high weightings in technology stocks which have performed well this year and relatively low weightings in energy stocks which have not. With recent technology high-fliers like Apple, Microsoft, NVIDIA, ASML and Taiwan Semiconductor in these indexes, it’s not hard to see what has helped fueled their comeback.”
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