Balancing sustainability and returns: What multi-asset investors need to know

In this article, Robeco’s Sustainable Multi-Asset Solutions team discusses the impact that integrating sustainability actually has on risk-adjusted returns over the past six years to the end of 2023. We use Robeco’s SDG Framework, mapping out the contributions that companies can make to the Sustainable Development Goals (SDG) as the principle means of ‘defining’ sustainability, and see how this feeds through into returns.

Certainly, some kind of price is paid, as the analysis shows that excluding less sustainable investments from multi-asset portfolios brings greater market deviation against traditional benchmarks. Additionally, the research shows that differing sectors and regions often cause short-term differences in performance due to the various biases that can creep in. But it does prove worthwhile in the medium-term.

And in any event, increasing regulation means investors will have to consider sustainability factors whether they find it convenient or not, making it imperative to understand how to balance sustainability with the returns that are needed by stakeholders over the market cycle.