A written masterclass, roughly seven minutes to read. General information rather than advice. Sustainable strategies carry the same market risk as any other.
Myth 1: it always costs you returns
The intuition is that restricting the universe must hurt. In practice, broad sustainable indices have tracked conventional ones fairly closely over long periods, because exclusions are usually a small share of the market by value.
The real cost is fees and concentration
Where sustainable portfolios have underperformed, the usual culprits are a higher fee and a narrower holding list, not the ethics. Both are controllable.
Myth 2: it reliably beats the market
The opposite claim, and equally unsupported. Much of the outperformance shown in marketing came from a period when technology did well and energy did badly — a sector tilt, not a sustainability premium.
Check the window
If a fund shows its record starting in a year that flatters it, ask for a longer one. A record that only works from one starting date is not a record.
Myth 3: ESG ratings are objective
They are not, and they disagree with each other far more than credit ratings do. Providers weigh different factors and some score how exposed a company is to environmental risk rather than how much harm it causes — a distinction that surprises most people.
- The same company can sit in the top decile with one provider and the bottom with another.
- Larger companies often score better simply because they disclose more, not because they behave better.
- Ratings measure policy and disclosure more readily than outcomes, because outcomes are harder to obtain.
Myth 4: selling shares punishes a company
Selling a listed share transfers it to a buyer who cares less. The company receives nothing either way; it raised its capital long ago. Divestment matters mainly at scale, over time, through the cost of capital.
Engagement has the better evidence
Voting shares and pressing management has a stronger record of changing behaviour than exiting quietly. If that matters to you, ask a manager for their voting record — not their policy, their record.
Myth 5: a sustainable label means no surprises
Labels are marketing until verified. A best-in-class fund can hold the least-bad company in a sector you thought was excluded, and be entirely accurate in its description.
- 1Open the holdings list — it is public.
- 2Read the top twenty. That is most of the risk and most of the character.
- 3Compare against a conventional index fund. If they are nearly identical, decide whether the extra fee buys anything.
Myth 6: it is only for people who care about climate
Governance — the G — is the least discussed and best supported element. Weak boards, poor controls and misaligned incentives precede a large share of corporate disasters, and that is a financial argument rather than an ethical one.
The defensible version
Treat governance quality as risk management, treat exclusions as your values, and do not expect either to raise returns. That framing survives contact with evidence.
Taking it further
Documents you may also need
The ESG Integration Playbook
What sustainable investing does, what it does not, how the labels differ, and how to check whether a fund does what its name suggests.
MasterclassRisk Management in Volatile Markets
What risk actually means, why volatility is a poor proxy for it, and the small number of things that reliably help when markets fall.
InsightsMarket Forecast & Trends
Our standing view on rates, currencies, credit and equities — what drives each, what we watch, and what it means for the decisions in front of you.
This document was last updated on 1 August 2026. We publish the current version here at all times; superseded versions are available on request.
If anything on this page is unclear, write to us and we will explain it.