Commonly-used performance benchmarks, such as the S&P 500 Index and the MSCI World Index, exert tremendous influence over stock selection for fund managers, but for socially-conscious investors with long-term active strategies, the pressure to beat an existing index can feel constricting.
“For fear of being labelled as having terrible risk-adjusted returns, most investment managers work really hard to correlate to their benchmark,” said Garvin Jabusch, chief investment officer at Green Alpha Advisors, a $50 million responsible investing asset manager in Boulder, Colorado. “If you’re an ESG manager, it’s a trap. You’ve got to kind of decide if you want to put sustainability first or your benchmark first.”
