Myth #1: Investing sustainably leads to lower returns and underperformance

Fact: Not necessarily. Sustainable investments can generate comparable returns to a traditional benchmark.

One of the frequent sustainable investing myths is that it generates lower returns. Years of performance data now shows that sustainable strategies often perform in line with – or in some cases, outperform – a traditional benchmark as shown in the chart above. Here are some reasons why:

• Extensive data, corporate disclosure and regulatory reports give investors new insights into how well companies are managing environmental, social and governance (ESG) concerns. When done right, focusing on key ESG issues can potentially lower investment risk. ESG factors such as human capital management and land use could have significant effects – both positive and negative – on a company’s business model.
• Sustainability megatrends can impact the economy and society, as well as profitability.¹ A relevant example is the clean energy transition, which includes wind and solar, smart grids and energy storage. The most recent estimates found that clean energy added around USD 320 billion to the world economy, representing 10% of global GDP growth. For scale, that’s more than the value added by the global aerospace industry or the economy of the Czech Republic.²

Myth #2: Sustainable investing excludes things from my portfolio and only focuses on the environment

Fact: There are many ways to invest sustainably.

Different approaches to sustainable investing can help you better align your portfolio with your goals – and you can go beyond divesting or environmental concerns.

Climate change is a focus for many sustainable investors. However, social and governance issues – the S and G in ESG – are top of mind as well. Arguably, every investment should focus on the G – sound governance practices are critical to the long-term success of businesses. And social issues like employee wellbeing are increasingly more important to investors.

If you’re interested in bringing personal values to the forefront, divesting from business practices like tobacco or firearms might be a viable option. For those concerned about long-term risks like climate change, you may want to consider ESG factors in your portfolio or investment strategy. It’s also possible to invest in certain environmental and social themes (think water or gender diversity) or focus on generating a positive impact alongside financial returns.

Remember that sustainable investing can vary in approach from manager to manager, just like any other investment. Portfolio managers often choose certain factors or opportunities to emphasize based on their investment thesis, and sustainable investing is no different. Work with your advisor to build a sustainable investing portfolio that meets your individual needs.

Myth #3: Sustainable investing doesn’t drive real change

Fact: It has, and it can. You can have a voice through active managers and corporate engagement strategies.

Companies often have a global influence, sometimes for the better (e.g., by being a good employer) and sometimes for the worse (e.g., by polluting a local ecosystem). It’s possible to sponsor specific causes through your investments and potentially impact company behavior.

Let’s dive deeper with a real-life case study. An investment manager holds a leading U.S. manufacturer of cement in its sustainable portfolio. However, it is the portfolio’s significant carbon emitter. Manufacturing construction supplies is a carbon-intensive process that produces “clinker” – a component in cement – which is responsible for about 60% of total cement-manufacturing emissions.

After engagement from the investment manager, the manufacturer has taken steps to decarbonize its operations by:

• Increasing use of alternative fuels
• Reducing clinker content³
• Employing carbon capture, utilization and storage technology

The manufacturer has a 20% carbon intensity reduction goal by 2030 versus a 2011 baseline. To encourage further change, the manager will continue proposing a new science-based emissions target.⁴

This is just one example of how sustainable investing can help drive change. By investing in actively managed strategies that engage directly with companies, it’s possible to drive positive change over time.

Myth #4: Sustainable investing is a passing fad

Fact: It doesn’t seem to be –sustainable assets have increased and stabilized over time.

Despite market volatility, sustainable investment fund totals have remained stable as illustrated in the chart above.

The above data shows that global assets under management in sustainable funds are around $3.2 trillion as of December 2024., increasing 18% since 2022. 

We expect this growth will continue due to several factors, including:

• Shifting investor preferences, particularly among Gen Z and millennials, who prioritize sustainability⁵
• Growth in corporate net zero pledges⁶
• Policy and regulatory changes, such as the Sustainable Finance Disclosure Regulation (SFDR) in Europe⁷
• Macro tailwinds, such as the clean energy transition and sustainable technology, which require up to $5 trillion in spending per year and may create continual long-term investment opportunities⁸

Myth #5: Sustainable investing is expensive and requires a large asset base

Fact: Not always, but it depends on the portfolio.

While having a larger asset base can provide a broader range of investment options, you can invest sustainably regardless of portfolio size.⁹ In fact, sustainable investors are more diverse than you think – from individuals who invest a small portion of their portfolio to large foundations or non-profits with specific mandates.¹⁰

The fees associated with sustainable investments can vary, and fees depend on several factors, including the type of investment, the fund manager and the specific strategies employed. Here are some considerations:

• Mutual funds and ETFs: Some sustainable mutual funds and exchange-traded funds (ETFs) may have higher expense ratios compared to their non-sustainable counterparts. This can be due to the additional effort required to evaluate companies based on ESG criteria. However, the difference in fees is not always significant,¹¹ and many sustainable funds are cost-competitive.
• Active versus passive management: Actively managed sustainable funds (where fund managers actively select investments based on ESG criteria) tend to have higher fees compared to passively managed funds. Passive sustainable funds often have lower expense ratios.
• Impact investing and private equity: More specialized sustainable investments, such as impact investing funds or private equity funds focused on sustainability, may have higher fees due to their niche nature and intensive due diligence.

It's important to carefully review the fee structure of any investment product, sustainable or otherwise. Look for information on expense ratios, management fees and any other associated costs with your advisor.

Discover more about sustainable investing

Sustainable investing offers unique opportunities to better align a portfolio with personal goals beyond just financial returns.

To explore sustainable investing and the range of strategies available on our platform, get in touch with an advisor.

IMPORTANT INFORMATION

This material is for informational purposes only, and may inform you of certain products and services offered by J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). Products and services described, as well as associated fees, charges and interest rates, are subject to change in accordance with the applicable account agreements and may differ among geographic locations. Not all products and services are offered at all locations. If you are a person with a disability and need additional support accessing this material, please contact your J.P. Morgan team or email us at accessibility.support@jpmorgan.com for assistance. Please read all Important Information.

When investing in mutual funds or exchange-traded and index funds, please consider the investment objectives, risks, charges, and expenses associated with the funds before investing. You may obtain a fund’s prospectus by contacting your investment professional. The prospectus contains information, which should be carefully read before investing.

Environmental, social and governance (“ESG”) or sustainable investing strategies, including SMAs, mutual funds and ETFs, may include additional risks and can limit investment opportunities potentially underperforming other strategies that do not have an ESG or sustainable focus. Strategies focused on a specific theme or sector can be more concentrated in particular industries or sectors with common characteristics and are often subject to similar business risks and regulatory burdens. Because investing on the basis of ESG/sustainability criteria can involve qualitative and subjective analysis, there can be no assurance that the methodology utilized by, or determinations made by, J.P. Morgan, or an investment manager/adviser selected by J.P. Morgan, will align with the beliefs or values of the client. Additionally, other investment managers/advisers, including our affiliates, can have a different approach to ESG or sustainable investing and can offer varying ESG or sustainable investing strategies on the same theme or topic. ESG and sustainable investing are not uniformly defined concepts and scores or ratings may vary across data providers that use different screens or processes for evaluating ESG characteristics. Investment managers/advisers rely upon information and data that might be incomplete, inaccurate or unavailable, which could cause them to incorrectly assess an investment’s ESG or sustainable attributes.

The MSCI ACWI Selection Index is a free float-adjusted market capitalization-weighted index designed to represent the performance of companies that are selected from the MSCI AWCI Index (“Parent Index”) based on Environmental, Social and Governance (ESG) criteria. These criteria exclude constituents based on involvement in specific business activities, as well as ESG ratings and exposure to ESG controversies. The Indexes are derived from the MSCI ACWI Index and aim to achieve sector weights that reflect the sector weights of the corresponding Parent Index. The MSCI ACWI Selection Index consists of Large and Mid cap companies across 23 Developed Markets (DM) and 24 Emerging Markets (EM) countries*. The Index construction targets 50% free float-adjusted market capitalization coverage of each Global Industry Classification Standard (GICS®) sector by selecting constituents primarily based on criteria including the ESG rating, the trend in that rating and the company’s industry-adjusted ESG score. The Index is a member of the MSCI Selection Index series.

The MSCI ACWI Index, MSCI’s flagship global equity index, is designed to represent performance of the full opportunity set of large- and mid-cap stocks across 23 developed and 24 emerging markets. As of May 2022, it covers more than 2,933 constituents across 11 sectors and approximately 85% of the free float-adjusted market capitalization in each market. The index is built using MSCI’s Global Investable Market Index (GIMI) methodology, which is designed to take into account variations reflecting conditions across regions, market cap sizes, sectors, style segments and combinations.