View the full report (PDF)
Investment Institute

Sustainable Investing

Investing with a purpose

  • Investing with a purpose
  • Performance of sustainable investments
  • Rise of sustainable investing
  • Investor implications: Trends to watch

Download the full report (PDF)

Investment and Insurance Products: : NOT FDIC InsuredNO Bank GuaranteeMAY Lose Value

“Goodness is the only investment that never fails.”

Henry David Thoreau

Aligning investments with values

Due to today’s market uncertainty, it may be an appropriate time to evaluate your portfolio. If you are looking more closely at aligning your portfolio with your principles, you may want to think about sustainable investing.

Sustainable investing is a broad term that describes how investors may align their portfolios with their principles; this can include an approach focused on environmental, social, and governance (ESG) criteria; impact investing; and/or socially responsible investing.

Sustainable investing aligns portfolios with ethics, beliefs, and ideals

ESG analysis. Seeks to manage risk by integrating ESG factors that influence both financial performance and society at large.

Socially responsible investing. Seeks to avoid industries and companies that are not in alignment with an investor’s values, primarily through exclusions.

Impact investing. Intends to generate an identifiable and measurable impact, in addition to a financial return.

The sustainable investing landscape

Often environmental, social, and governance factors are intertwined

Environmental factors can include climate change and carbon emissions, energy efficiency, and air and water pollution; governance factors can include lobbying, politcal contributions, and accounting; social factors can include customer protection, community relations, and data privacy and protection.

Performance of sustainable investments

Our research indicates that investors do not need to forego return potential to align their portfolios with their values. On the contrary, a growing body of evidence suggests that financial performance of companies using ESG strategies is commensurate with that of those that do not. In fact, more than 90% of the 2,200 individual studies reviewed by the Journal of Sustainable Finance & Investment have shown a nonnegative relationship between ESG and corporate financial performance, with a majority of findings showing positive results.

ESG-related stocks have tended to keep pace

Our research has shown that ESG-related stocks have shown comparable returns to non-ESG-related stocks over time, adjusting for fundamental differences such as style and sector.

View text alternative

This chart shows that, between 2015 and 2019, the MSCI All Country World Index, MSCI All Country World ESG Leaders Index, S&P 500 Index, and S&P 500 ESG Index all saw similar performance. In fact, the ESG-related indices outperformed the non-ESG indices in recent years.

Sources: Bloomberg and Wells Fargo Investment Institute, as of December 31, 2019. Past performance is no guarantee of future results. An index is unmanaged and not available for direct investment.

Please see the end of this report for the definitions of indices and descriptions of asset-class risks.

Learn how to grow your own sustainable investment strategy.

Download the full report (PDF)

Rise of sustainable investing

Investor demand has been a key growth driver for sustainable investment strategies, and managers have risen to the challenge. Sustainable investment assets under management (AUM) have doubled since 2007. Additionally, 69% of investors would choose to use these types of investments in their retirement accounts if they were given the option to do so, according to the Wells Fargo/Gallup Investor Retirement Survey, February 2020.1

View text alternative

Between 1996 and 2019, both the amount of assets under management (AUM) in sustainable investment funds and the number of sustainable investment funds has steadily increased.

AUM (in billions)

  • 1996: 245
  • 2019: 3,248

Source: Morningstar Direct, Wells Fargo Investment Institute, as of September 30, 2019. AUM = assets under management

1. The Wells Fargo/Gallup Investor and Retirement Optimism Index poll was conducted online February 10-16 using the Gallup Panel, a probability-based longitudinal panel of U.S. adults. The results are based on 1,029 investors aged 18+ with $10,000 or more invested in stocks or bonds, either individually or as part of a retirement or mutual fund.
Investor implications

Trends to watch

Strategists at Wells Fargo Investment Institute recommend that investors interested in sustainable investing keep an eye on these four emerging trends.

Image of woman using a walkie-talkie in front of a windmill.

Energy

For the past several decades, the assumption has been that fossil fuels will continue to be the main source of energy, with increases in carbon-intensive assets making it difficult to attain climate goals set by the Paris Agreement. We believe that the trend will be changing to a more clean energy source. Emerging technology, integrated with new policies that limit the use of carbon, likely will take shape over the next several decades.1 We believe that lower production costs and the opportunity to scale in emerging markets via disruptive technologies will be the main levers to enable a transition to renewable energy sources.

Implication for investors

We favor investing in companies that focus on disruptive technologies, such as long-duration batteries, electric vehicles, and wind and solar technology.

1. “The Speed of the Energy Transition: Gradual or Rapid Change?”, World Economic Forum.

Image of person using a tablet device.

Data protection

According to International Data Corporation (IDC), the Internet of Things (IoT) and increased connectivity to the IoT will generate 79.4 zettabytes (1021 bytes) of data by 2025.1 Increased use of cloud technology and data centers has introduced a new role within firms’ C-suites: the Chief Data/Information Officer. A survey of approximately 60 Fortune 1000 firms, conducted by NewVantage Partners, reported that 67.9% have appointed a Chief Data/Information Officer.2 This indicates a trend of viewing data as an asset, giving rise to the importance of data protection and privacy.

Implication for investors

We favor investing in companies that have strong data regulation and governance policies in place within the subsectors of data science and analytics.

1. “The Growth in Connected IoT Devices Is Expected to Generate 79.4ZB of Data in 2025, According to a New IDC Forecast”, IDC, June 18, 2019.
2. “Big Data and AI Executive Survey 2019,” NewVantage Partners, January 2, 2019.

Image of man with goat herd.

Animal rights

Cruelty-free investing excludes investments in corporations that exploit and abuse animal rights. This methodology avoids corporations that manufacture food, beverages, or clothing containing animal products; use animals for experimentation and testing; and are involved in killing or harming animals.1

Implication for investors

We favor companies that are advocates of animal rights and create products, such as plant-based proteins, without exploiting or abusing animals.

1. Crueltyfreeinvesting.org, February 12, 2020.

Image of office building with green trees in front.

Green accounting

This is an accounting method that attempts to factor environmental costs into the financial results of operations. The aim is to help businesses understand and manage the potential balance between economic and environmental goals.

Implication for investors

We favor investing in companies that have made commitments to achieving sustainability goals and reducing carbon emissions.

Grow your sustainable investment strategy

Sustainable Investing: Investing with a purpose includes more information to help investors understand the opportunities with sustainable investing, including:

  • How to grow your sustainable investment strategy
  • Sustainability plans for small-business owners
  • A detailed look at ESG investing
  • A five-category analysis of ESG portfolios and products

Wells Fargo Investment Institute is home to more than 120 investment professionals focused on investment strategy, asset allocation, portfolio management, and alternative investments. Its mission is to deliver timely, actionable advice that can help investors achieve their financial goals.

For additional insight and market commentary, visit our website. For assistance with your investment planning or to discuss the points in this report, please talk to your investment professional.

Follow us on Twitter at @WFInvesting

Download the full report (PDF)

Q1 2020 report cover

Wells Fargo Stagecoach Illustration

Wells Fargo Investment Institute | Privacy and Security | Report Fraud

Definitions

The MSCI All Country World Index (ACWI) captures large- and mid-cap representation across 23 developed market and 26 emerging market countries.

The MSCI ACWI ESG Leaders Index is a capitalization-weighted index that provides exposure to companies with high environmental, social, and governance (ESG) performance relative to their sector peers. The MSCI ACWI ESG Leaders Index consists of large- and mid-cap companies across 23 developed market and 26 emerging market countries.

MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.

The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value.

The S&P 500 ESG Index is a broad-based, market-cap-weighted index that is designed to measure the performance of securities meeting sustainability criteria while maintaining similar overall industry group weights as the S&P 500 Index.

An index is unmanaged and not available for direct investment.

Risk considerations

All investing involve risks, including the possible loss of principal. There can be no assurance that any investment strategy will be successful. Investments fluctuate with changes in market and economic conditions and in different environments due to numerous factors, some of which may be unpredictable. Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve.

The risks associated with the representative index asset classes discussed in this report include: Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. These risks are heightened in emerging markets. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation, and other risks. Prices tend to be inversely affected by changes in interest rates.

Sustainable investing focuses on companies that demonstrate adherence to environmental, social, and corporate governance principles, among other values. There is no assurance that social impact investing can be an effective strategy under all market conditions. Different investment styles tend to shift in and out of favor.

 

General disclosures

Brokerage products and services offered through Wells Fargo Clearing Services, LLC, a registered broker-dealer and nonbank affiliate of Wells Fargo & Company. Bank products are offered through Wells Fargo Bank, N.A.

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by the Global Investment Strategy (GIS) division of WFII. Opinions represent GIS’ opinion as of the date of this report; are for general informational purposes only; and are not intended to predict or guarantee the future performance of any individual security, market sector, or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation; an offer to participate in any investment; or a recommendation to buy, hold, or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs, and investment time horizon.

Wells Fargo Advisors is registered with the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority but is not licensed or registered with any financial services regulatory authority outside of the U.S. Non-U.S. residents who maintain U.S.-based financial services accounts with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions, or communications made with Wells Fargo Advisors.

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and nonbank affiliates of Wells Fargo & Company.

© 2020 Wells Fargo Investment Institute. All rights reserved. CAR 0420-01603

  • Investing with a purpose
  • Performance of sustainable investments
  • Rise of sustainable investing
  • Investor implications: Trends to watch
  • Back to top
  • Investing with a purpose
  • Performance of sustainable investments
  • Rise of sustainable investing
  • Investor implications: Trends to watch
Download the full report (PDF)
Download the full report (PDF)