Pax World’s sustainable investing approach integrates rigorous financial analysis with our proprietary environmental, social and governance (ESG) analysis to identify better-managed companies that meet positive corporate responsibility standards, have a clear vision for managing risk, and are focused on delivering long-term value to shareholders. We seek a fair return as well as positive social and environmental impact. 

We believe environmental, social and governance factors have financial impact on corporate performance and integrating these factors into portfolio management can mitigate risk and add value to an investment portfolio. In our view, sustainable investing is simply a better, smarter way to invest. And, research supports our belief.

ESG: good companies can make good stocks
Bank of America Merrill Lynch, December 18, 2016
ESG may be too costly for investors to ignore, reports Bank of America Merrill Lynch.  Companies with higher ESG scores tended to have lower future stock price volatility, higher subsequent return on equity and were less likely to declare bankruptcy. 

Responsible Investing: Delivering competitive performance
Amy O’Brien, Lei Liao and Jim Campagna, TIAA. April 2016.
TIAA tracked the performance of five widely-known SRI* indexes with track records of at least 10 years, and compared returns with those of two broad market indexes, the S&P 500 and the Russell 3000.  They found there was no statistical difference in returns, and that the risk profiles were similar.  Overall, the authors found no systematic performance penalty.

Evaluating the Relationship Between ESG and Corporate Fixed Income
Breckinridge Capital Advisors and MIT Sloan School of Management, Spring 2016
ESG scores were found to be positively correlated with several measures of financial health, including risk, return on assets and leverage ratios. These positive relationships were stronger during periods of market turmoil.  ESG integration can offer downside mitigation to investors, and the authors expect ESG criteria to be increasingly relevant in the determination of companies’ credit quality. 

Sustainable investing and bond returns:  Research study into the impact of ESG on credit portfolio performance
Barclays, 2016
This study examines the impact of using ESG attributes in fixed income investment and concludes that ESG need not be an “equity-only” strategy. Using an ESG tilt in a bond index produced a small, but steady, performance advantage.

Higher Sustainability Ratings Can Mean Lower Risk
Jon Hale, Morningstar, October 13, 2015
Morningstar's research shows that large-cap U.S. funds with high Morningstar Sustainability Ratings have lower risk.

ESG and Financial Performance: Aggregated Evidence From More Than 2,000 Empirical Studies
Gunnar Friede, Timo Busch & Alexander Bassen, Journal of Sustainable Finance & Investment 5:4, October 2015.
This study, which combined the findings of about 2200 individual academic studies that examine the relationship between ESG criteria and corporate financial performance, shows that the business case for ESG investing is very well supported. Approximately 90% of studies found that the relationship between ESG and financial performance was either positive or zero—only ten percent of studies show a negative relationship.

Can ESG Add Alpha?
Zoltán Nagy, Altaf Kassam and Linda-Eling Lee, MSCI, June 2015
MSCI examined two ways to construct ESG portfolios---ESG Tilt and ESG Momentum---and found that there is no necessary performance trade-off involved with integrating ESG factors into portfolios when compared to the MSCI World Index.  Both strategies outperformed the global benchmark over the past 8 years.

Sustainable Reality: Understanding the Performance of Sustainable Investment Strategies
Morgan Stanley Institute for Sustainable Investing, March 2015
Morgan Stanley reviewed performance data for over 10,000 open-end mutual funds and almost 2,900 separately managed accounts in the US, and concluded that sustainable investing funds “usually met, and often exceeded, the performance of comparable traditional investments” both on an absolute and risk-adjusted basis.


*SRI - Sustainable, Responsible, Impact

Impact: The Next Stage of Sustainable Investing

The future of sustainable investing is focusing on high-impact, solutions-oriented companies confronting global sustainability challenges.


Spotlight on ESG Criteria

Pax World pioneered an investment approach known as sustainable investing - the full integration of environmental, social and governance (ESG) factors into investment analysis and portfolio construction.