Lyxor Asset Management (“Lyxor”) has published the findings of a new research paper addressing one of the most topical questions for investors: does environmental, social and governance-focused (ESG) investing lead to a negative impact on returns?

The conclusions of Lyxor’s new research paper are that ESG investors do not have to compromise on performance. Instead, a screening strategy based on ESG scores can raise the ESG profile of both passive and active smart beta portfolios, without necessarily reducing risk-adjusted returns.

Those Lyxor’s findings are supported by a new study released by the Lyxor Dauphine Research Academy, as well as by the work of an in-house research team.This is the third in a series of papers from Lyxor on the evolution of the asset management industry and on portfolio construction.

In particular, researchers Fabio Alessandrini and Eric Jondeau of the University of Lausanne, found that, based on an analysis of the past performance of a universe of stocks (represented by the MSCI All Country World index) during the period 2007-2018, a policy of exclusion based on companies’ ESG scores did not impact portfolio performance negatively. And in most cases, using an ESG filter improved the performance of risk factor portfolios,even on a risk-adjusted basis. For example, excluding 50 percent of firms with the lowest ESG ratings from a European equity size portfolio added 2.3 percent per annum of return over 10 years, while removing 1.6 percent of volatility.

Lyxor’s latest paper provides statistical evidence for the rise of interest in ESG. Sustainable investment assets, including both actively and passively managed ESG funds, reached more than $31 trillion at the end of 2018, up 34 percent since 2016. This now represents a 39 percent share of global professionally managed assets.