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Long-Term Sustainable Investment for Retirement

Iqbal Owadally (), Jean-René Mwizere (), Neema Kalidas (), Kalyanie Murugesu () and Muhammad Kashif ()
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Iqbal Owadally: Business School, City, University of London, 106 Bunhill Row, London EC1Y 8TZ, UK
Jean-René Mwizere: Business School, City, University of London, 106 Bunhill Row, London EC1Y 8TZ, UK
Neema Kalidas: Accenture (UK) Ltd., 30 Fenchurch Street, Billingsgate, London EC3M 3BD, UK
Kalyanie Murugesu: Redington Partners LLP, One Angel Court, London EC2R 7HJ, UK
Muhammad Kashif: School of Business and Economics, Universidad de las Americas Puebla, Sta. Catarina Mártir, Cholula, Puebla 72810, Mexico

Sustainability, 2021, vol. 13, issue 9, 1-22

Abstract: We consider whether sustainable investment can deliver performance comparable to conventional investment in investors’ long-term retirement plans. On the capital markets, sustainable investment can be achieved through various instruments and strategies, one of them being investment in mutual funds that subscribe to ESG (environmental, social, and governance) principles. First, we compare the investment performance of ESG funds with matched conventional funds over the period 1994–2020, in Europe and the U.S. We find no significant evidence of differing performance (at 5% level) despite using a number of investment performance metrics. Second, we perform a historical backtest to model a UK personal retirement plan from 2000 till 2020, taking full account of investment management fees and transaction costs. We find that investing in an index-tracker fund overlaid with ESG screening delivers a pension which is 10.4% larger than is achieved if the index-tracker fund is used without screening. This is also 20.2% larger than is achieved by investing in a collection of actively managed funds with a sustainable purpose. We conclude that an ESG-screened long-term passive investment approach for retirement plans is likely to be successful in satisfying the twin objectives of a secure retirement income and of sustainability.

Keywords: environmental; social and governance (ESG); ethical investment; socially responsible investment; performance evaluation (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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