Every climate-related investment approach is unique in its characteristics and goals and, as a result, can deliver a wide range of investment outcomes.
In his new paper – There’s More Than One Way to Be a Climate Investor – Morningstar Indexes Strategist Dan Lefkovitz examines both ESG profiles and performance for a range Morningstar Indexes’ climate-related equity benchmarks in 2022 and 2023, finding that different approaches have delivered divergent results for investors.
For example, the Morningstar Global ex-Fossil Fuels Index, Global Markets EU Climate Transition Benchmark, and Global Markets Sustainable Environment Index, all broadly diversified with an ESG tilt, have outperformed so far in 2023 as global equity markets have surged, but underperformed during the downturn of 2022.
Dan Lefkovitz – Strategist, Morningstar Indexes:
“For climate-oriented investors, returns will depend on the approach and the biases inherent to the strategy. Low carbon, fossil fuel-free, and low-ESG-risk approaches can hew closely to the market and tend to exhibit a growth bias with higher tech exposure. Renewables, green technologies, and impact-oriented investments, on the other hand, tend to be far more focused, can deviate further from the market and are generally more volatile. On the plus side, these strategies are more impact-aligned and hold up better during tech crashes.”
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