The first quarter was a recipe for sustainable-investing success as Big Technology stocks staged a rebound while energy stocks slumped.
Many of the Big Tech stocks that made the biggest gains in the first quarter of 2023—such as Nvidia NVDA, Salesforce CRM, and Microsoft MSFT—also have some of the strongest scores on environmental, social, and governance criteria, so sustainable investment strategies benefited from their outperformance. At the same time, sustainable strategies were broadly able to dodge the hit taken by stocks in the energy sector as oil prices lost ground.
As a result, the stocks of companies that lead the ESG investing space leapt ahead of the broader market during the first quarter. But there were exceptions: as dividend-paying stocks lagged, trailing the market by nearly 7 percentage points, ESG-friendly dividend payers also fell behind.
Looking back over the longer term, US-based sustainable investment strategies of all kinds are edging out the rest of the stock market.
The Morningstar US Sustainability Index, which tracks the broader US equity market but screens out companies with the highest ESG risk, gained 8.2% during the first quarter. That’s nearly a full percentage point ahead of the broader equity market, which rose 7.4%, as measured by the Morningstar US Market Index.