April 08, 2024

Sustainable Investment Insights - April 2024

Quarterly report

Geography beats SI strategy in a mixed Q1

Despite the continued rally in global equity markets, SI index performance was mixed in Q1. Geography was the biggest influence on performance, more than the type of SI strategy, with Japanese SI indices seeing a strong outperformance, while US SI indices have underperformed. ESG indices outperformed climate indices, a reversal of the trend seen in 2022-23, when climate indices outperformed in up markets. 

Key highlights:

  • ESG versus Climate - FTSE4Good was the strongest global outperformer in Q1 (+0.4%), while PAB saw the largest global underperformance (-1.2%). This was part of a general underperformance of Climate versus ESG. This is unusual as the more growth focused, lower yielding climate indices have typically outperformed in up market quarters. 
  • Japan versus US - SI outperformance was highly variable depending on the region, even within the same SI strategies. The US and Japanese equity markets both performed very strongly in Q1, however all Japanese SI indices strongly outperformed in Q1, while all, but one, US SI indices strongly underperformed. To a lesser degree, EM SI indices also performed better than Developed market SI indices in Q1.
  • Tech versus Energy - The continued strong performance of the Tech sector has been one of the most positive drivers for SI indices, which are all overweight Tech. However, selection in Tech has mostly been negative for global SI indices, although it has been positive in some regions. In contrast, the Energy sector, where all global SI indices are underweight, had a limited negative impact, despite the rising oil price. Weakness in the EV market also negatively impacted the Consumer Discretionary industry in climate-focused indices. 
  • SI Challenges - Sustainable investment came under continued pressure in Q1 as global temperatures set new record highs. Over-capacity in the renewable energy and EV markets led to rapidly falling prices and equity market underperformance. SI fund flows have seen continued pressure in Q1, particularly in SI equities.

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