Written by Client Manager, Tom Desborough
Peter and Linda* walked into our office with a familiar worry: “We’d like to be responsible with how we invest our savings, but we’re concerned that might mean we don’t have enough money when we need it”. It’s a perfectly reasonable concern. After years of headlines suggesting ‘green’ funds lag the markets, many investors fear that aligning portfolios with their values will cost them in pounds and pence. Happily, the evidence tells a different, more encouraging, story.
The myth of a “performance penalty”
Economic theory once predicted a “sinstock premium”: if enough investors avoided highpolluting or unethical companies, those shares would stay cheap and might outperform. Yet when researchers aggregated more than 2,000 academic studies, they found that around 90% reported either the same or better financial outcomes for companies with strong environmental, social and governance (ESG) profiles. (Friede, Busch & Bassen, 2015).
A second, independent meta analysis by NYU Stern and Rockefeller Asset Management looked specifically at investment level results. It concluded that 59% of ESG integrated funds delivered returns equal to or above conventional peers, while only 14% underperformed- hardly the trade off many sceptics imagine (NYU Stern & Rockefeller, 2021).
Real world fund results
What about the actual funds ordinary savers buy? Broad comparisons show that sustainable funds have, on average, delivered returns broadly in line with conventional peers. There are periods of relative strength (for example, in 2023) and periods of lag (notably parts of 2024), but over multiyear horizons those differences tend to wash out, leaving investors with marketlike outcomes (Morgan Stanley, 2024).
Why risk adjusted returns can improve
Performance is only half the equation. What matters equally is the ride you take to get there. An analysis of global equity data by Abrdn Investments found that high ESG companies exhibit lower share price volatility, lower betas and lower costs of capital than their low ESG counterparts, resulting in higher risk adjusted returns for diversified portfolios (Abrdn Investments 2023). In crises, from pandemics to energy shocks, well governed and environmentally prepared businesses tend to suffer fewer nasty surprises, which cushions portfolio drawdowns and shortens the recovery slog.
Paradigm Norton’s approach
At Paradigm Norton, we’ve embedded these findings into how we manage money:
- Responsible is the default. Since 2023, clients joining the firm start in our Paradigm Norton Responsible (PNr) portfolios unless they ask otherwise.
- Scale and evidence. Over 50% of the assets we look after now sit in Responsible or Intentional portfolios, reflecting growing client conviction that “values plus value” can coexist.
- Purpose baked in. We’re an employee owned, Certified B Corporation with a 148 point impact score, placing us among the UK’s highest scoring financial services B Corps (B Lab UK 2023).
- Same returns, more responsible. When building, managing and monitoring our PNr portfolio, our investment committee is aiming to achieve similar returns to our traditional portfolio whilst overlaying responsibility through ESG tilted managers who actively engage with the companies they invest in. It’s absolutely a portfolio aimed at maximising risk-return characteristics.
Putting theory into practice
For Peter and Linda, the practical upshot was simple; they could swap their conventional ISA and pension funds into a diversified PNr portfolio without budging their long term return assumption, yet they reduce exposure to coal, tobacco and poor governance laggards, and gained a say (via fund manager stewardship teams) in pushing companies toward net zero goals. A year on, their portfolio value is right on plan, but their anxiety is lower because their money feels aligned with their ethics.
So… can you do well and do good?
Decades of data, reinforced by real world fund performance and our own client experience, say yes. Responsible investing does not guarantee outperformance every time period, but neither does mainstream investing. What the numbers do show is that over time you can target market rate returns while helping to nudge businesses and the planet, in a healthier direction.
Next steps
If you’re curious about aligning your investments with your values, without compromising the comfort of your future lifestyle, speak to a financial adviser who can accommodate your ESG-aligned values. We’d be delighted to have that conversation, but whichever expert you choose, make sure they can back their recommendations with robust evidence and a clear philosophy. After all, money matters…but life matters more.
Get in touch to start aligning your money with your values – without sacrificing your retirement.
*Fictitious names have been used within this article to safeguard client confidentiality and protect personal identities.
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References
Friede, G., Busch, T. and Bassen, A. (2015) ‘ESG and financial performance: Aggregated evidence from more than 2,000 empirical studies’, Journal of Sustainable Finance & Investment, 5(4), pp. 210–233.
NYU Stern Center for Sustainable Business and Rockefeller Asset Management (2021) ‘ESG and financial performance: Uncovering the relationship by aggregating evidence from 1,000+ studies published between 2015–2020’. New York: NYU Stern.
Morgan Stanley Institute for Sustainable Investing (2024) ‘Sustainable Reality: 2024 Update Analysing Risk and Returns of Sustainable Funds’. New York: Morgan Stanley.
abrdn (2024) ‘Why high‑ESG companies can mean lower portfolio risk’. Edinburgh: abrdn.
B Lab UK (2023) ‘Certified B Corporations – Paradigm Norton Financial Planning’. Available at: https://www.bcorporation.uk (Accessed: 23 July 2025).
Investing places your capital at risk and the values of investments can go down as well as up. Investors may get back less than the original amount invested. Past performance is no guarantee of future returns.
Any type of sustainable or ESG investment will involve risk to investors capital, and the expected environmental or social return may not be achieved.
This article is distributed for information purposes only and should not be considered investment advice or a recommendation of any particular security, strategy, or investment product. You should seek competent advice before taking any action.
The views and information provided are based on publicly available sources we consider reliable, but we do not guarantee their accuracy or completeness, and they should not be solely relied upon.
