In this post we analyze the evolution of Socially Indexed Investment (SRI) in recent years and the impact on inbestMe’s SRI portfolios in 2024 and in the long term.
SRI equity has been as profitable or more profitable over the long term
Fuente MSCI
The MSCI ACWI SRI in Euros (All country World Index SRI) has obtained an annualized return of 12.65% compared to 12.14% obtained by the MSCI ACWI according to MSCI data.
Fuente MSCI
Therefore, it can be stated that in general and with the available data, global SRI (Socially Responsible Investment) indexed investment in these almost 14 years has been as or more profitable, specifically 0.51% higher in annualized profitability (12.65%-12.14%).
In other words, investing sustainably and responsibly does not mean giving up long-term profitability. A period of more than ten years is long enough to be considered as such. In addition, the volatility of both indices has been similar, resulting in a slight advantage for the SRI index in the Sharpe ratio (0.87 vs. 0.84).
SRI equity in 2024 and in the last 3 years has lagged behind
Why are some investors questioning SRI at this time?
The reason is simple: in 2024, the SRI (22.8%) has obtained a return 3.1 percentage points lower than the general index (25.9%). Not only in 2024: although 2023 was better, as we can see in the table above, in the last 3 years it has accumulated 6.2 percentage points less profitability and an annualized return (CAGR) lower by 1.8 percentage points.
The SRI variable income had been experiencing very positive years
This recent underperformance contrasts with the previous three years (2019-2021), when the SRI index clearly outperformed, accumulating 18.3 percentage points more than the general index and 4 additional percentage points in terms of annualized return (AER).
As can be seen in the following chart, in previous years (2012 to 2018) the divergence between the two indices was smaller (between 1%/2% annually). However, as is often the case in financial markets, there is no fixed rule and it is unpredictable which year will be more favourable for SRI.
The negative impact of equities in 2024 and in the last 3 years
Fuente: MSCI
After an exceptional 2020, with a 45% rise, impact equities (using the MSCI ACWI Sustainable Impact as a reference) have shown erratic behaviour and little correlation with the MSCI ACWI. This is because the ACWI Sustainable Impact filtering is really extreme, concentrating on 127 companies, 5% of the 2,647 that make up the MSCI ACWI.
Fuente: MSCI
In addition to being uneven, its historical annualized return (7.7%) has been 3.6 percentage points lower than the general index (11.3%). With similar volatility (over 14%), its Sharpe ratio (0.62) is 0.20 points below the general index.
In 2024, the impact equity has been particularly bad, with a negative return of -2.9%, with a difference of -28.8% compared to the general index, which has risen by 25.9%. In the last three years, the accumulated deviation has been 37 percentage points, or 11.5 in annual terms.
Exceptional returns of the inbestMe SRI portfolios but below
In line with the exceptional returns for 2024, inbestMe’s SRI portfolios have exceeded their annual expectations.
Returns have ranged from 3%/3.7% (profile 1) to 12.8%/13.8%, with an average of around 8%. However, these returns have been between 1 and 2 percentage points lower than standard portfolios, in line with what was explained above.
SRI ETF portfolios have clearly underperformed, with returns ranging from 2.9% to 8.9%, with an average of 5.2%. This is mainly due to the 3% to 12% exposure to the SDG-tickered ETF linked to the MSCI ACWI Sustainable Impact, which closed in the red, reducing the performance of all profiles, especially the highest ones.
The investment committee has decided to eliminate exposure to this ETF as of March 1, 2025. An impact fund was also eliminated from the index fund portfolios in 2024. Although our “sustainable” investors expressed in 2022 their preference for sustainability even at the expense of profitability, the extreme divergence of this index is contradictory to the main focus of inbestMe’s index-based portfolios.
Clients wishing to maintain or add sustainable or impact investments can contact customer service for customized portfolios (advanced portfolios minimum €100,000).
Returns of inbestMe SRI portfolios are generally similar
Despite the poorer performance in 2024, since 2017 inbestMe’s SRI portfolios have obtained average annualized returns similar to standard portfolios, although a few tenths lower (4.7% vs. 4.6%, with a difference of 0.3%). In terms of volatility, all are close to 8%, with a risk-adjusted return of around 0.5.
To see all the details of the profitability of our portfolios you can consult our returns page.
In the example we see the average investor profile (7/10) that accumulates 66.6% in SRI at the end of 2024 and an annualized return (AER) of 6.2%, practically identical to the standard index fund portfolio.
SRI is cyclical and a matter of personal values
Based on the historical information available, a sustainable investor does not have to compromise on performance. However, we believe that choosing a sustainable portfolio should be based on personal values or preferences, as it may underperform over certain periods. If an investor is not willing to accept these differences on an annual basis, it means that their commitment to sustainable investing is not strong enough to withstand them.
On the other hand, changing strategy from one year to the next can be one of the worst decisions, since, as we have seen, there are cycles in which one approach can outperform the other. Changing after a year with poor results can lead us to an even less favorable situation, losing the positive cycle after a negative one.
