Morningstar: ESG doesn't thrive in all market environments

Number crunching in Morningstar's global quant laboratory indicates that ESG in itself isn't a source of alpha.

"ESG funds do not target specific factor exposures, and it's difficult to maintain factor exposures unless you're really targeting them intentionally," says Michael Manetta, quantitative research manager at Morningstar in Chicago. | Photo: M. Spencer Green/AP/Ritzau Scanpix & PR / Morningstar

While ESG funds in general outperformed the broader market significantly in 2020, just 24 percent of Morningstar's ESG-screened indices beat their broad market equivalents in the first quarter of 2021.

In Europe, sustainable funds have particular stylistic tilts that largely boosted their performance in 2020 compared with conventional funds.

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