Dating back to the 16th century, investors have expressed their social views by avoiding investments that are contrary to their individual values.  While this investment style is still employed today, the discipline has expanded to include the analysis of non-monetary factors that may have an impact on a company’s long-term sustainability.  These factors are commonly referred to as ESG (Environmental, Social and Governance).  However, there are many common misconceptions and applications of ESG analyses. In this blog and its corresponding white paper, we attempt to demystify socially responsible and sustainable investing.

Definitions & Nomenclature

  • CSR: Corporate Social Responsibility (also known as socially responsible investing)
    • Negative screens to avoid issues regarding morality
  • SRI: Sustainable, Responsible and Impact
    • Positive screens within investment analysis
  • ESG:  Environmental, Social and Governance
    • Examples of factors used in CSR and SRI
      • Environmental – carbon footprint
      • Social – labor rights issues
      • Governance – composition of the board of directors

Investment Implications

We have yet to find any persuasive evidence that there is a specific element of CSR/SRI screens that will lead to outperformance over standard equity benchmarks.  At the same time, we disagree with the notion that imposing CSR/SRI screens dooms an investor to material underperformance versus traditional active management.  Ultimately, we believe the following takeaways to be true and consistent with our views on passive and active management in general:

  • Most actively managed socially responsible and sustainable funds are likely to underperform low-fee, market-cap weighted passive investing, i.e. an S&P 500 index fund.  However, this is primarily driven by higher management fees rather than the SRI mandate.
  • We would expect that even low-fee CSR/SRI funds would generally underperform a low-fee S&P 500 index fund on an after-tax basis as the former funds have higher turnover.
  • There is no compelling evidence to believe that either of these strategies will perform any better or worse than traditional active management.
  • There are no ex-ante methods to determine which managers in this space will outperform a traditional benchmark in any given period.

Important Considerations for SRI/ESG Investing

  • Be absolutely clear on which aspect or themes are most important to you, and make sure that the investment accomplishes your goals.
  • Focus on low-cost options – fees are the primary driver of active management’s tendency to underperform passive styles (whether it has a socially responsible mandate or not).
  • To the extent possible, utilize managers/strategies that rely on rules based methodologies and are as close to “passive” investing as possible.
  • Expect return deviations from traditional benchmarks (i.e. the S&P 500), which can be positive or negative for a given time-frame, depending entirely on which strategy is chosen (CSR/SRI/specific filters).


We are strong proponents of low-fee, market-cap weighted passive investing as it relates to the equity space.  But we also understand that there are situations where investment decisions are driven by factors other than expected risk and return – as is the case with socially responsible and sustainable investing.  However, there are important principles to abide by and pitfalls to avoid, to ensure that investing with such themes does not come at too great a cost.

For more detail on the above points please visit our Impact Investing page.



Wealthspire Advisors is the common brand and trade name used by Sontag Advisory LLC and Wealthspire Advisors, LP, separate registered investment advisers and subsidiary companies of NFP Corp.
This information should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The commentary provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Wealthspire Advisors, LP cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use. © 2019 Wealthspire Advisors

The Investment Team

Our dedicated investment team provides steady investment guidance to clients through strategic asset allocation, rigorous due diligence, and tailored portfolio construction.