Like many of its peers, Morgan Stanley believes that sustainable investing will be key to the mobilization of private capital towards addressing global challenges - but the growth and development of this space remains hampered by a lingering perception that sustainable investments require a financial trade-off.

Investing in sustainability has “usually met and often exceeded” the performance of comparable traditional investments - both on an absolute and risk-adjusted basis - across asset classes and over time, according to a new report from Morgan Stanley's Institute for Sustainable Investing.

After looking at 10,228 open-end mutual funds and 2,874 separately-managed accounts over the last seven years, Morgan Stanley said it has found that:

• Sustainable equity mutual funds met or exceeded the median return of traditional equity funds for 64 per cent of the time periods examined;
• Sustainable equity mutual funds also had equal or lower median volatility for 64 per cent of the time periods examined;
• For the longest time period (seven years trailing, 2008-2014), sustainable equity mutual funds met or exceeded median returns for five out of six different equity classes examined; and
• Long-term annual returns of the MSCI KLD 400 Social Index, which comprises firms scoring highly on environmental, social and governance criteria, exceeded the S&P 500 by 45 basis points between its inception in 1990 to the end of 2014.

The US firm believes the findings are of particular importance given that almost three-quarters (72 per cent) of those it recently surveyed said companies with good ESG practices can achieve higher profitability and are better long-term investments – the caveat being that simultaneously over half (54 per cent) assumed that sustainable investing involves a financial trade-off.