Adherence to ESG principles is growing in popularity not only to the more conscientious nature of investing it pursues, but its ability to drive outperformance of indices and resilience to market volatility.
ESG (Environmental, Social, and Governance) investing is a style of portfolio management that takes into account how companies are managed, their social impacts, and their environmental impacts outside of simply expected return.
Despite the intuitive assumption that adding caveats could reduce one's investment universe and temper returns, research has increasingly shown a correlation to strong performance and adoption of the fund management style mandated by the principles.
To understand how this method of investing can achieve this "best of both worlds" medium, TheStreet sat down with Joe Hudepohl, portfolio manager of the ESG-focused Atlanta Capital Focused Growth (EILGX) and Calvert Equity (CEYIX) portfolios, funds that perform in the top 1% and 3% of their peer groups respectively. Both funds have also easily outpaced their benchmark year to date.
"I personally don't think you give anything up," Hudepohl explained. "We're have a high quality focus, the relationship between ESG and high quality is why the performance is what it has been: what we call upside participation and downside protection."
He added volatile markets, such as was seen in the month of May, is best protected by evaluating companies on overall quality irrespective of a particular environment.
"We're looking for quality businesses that can thrive throughout a full market cycle," Hudepohl said. "Companies with ESG characteristics tend to do well in volatile markets...we generally protect capital because of the characteristics of the companies [we invest in]."
For longer term investors, he advised that now is the time to adopt these investment principles as they continue to bear out positive results.
"We're just hitting the sweet spot on what we do," Hudepohl said.
For more of Hudepohl's thoughts on the current market dynamics, ESG analysis, and some of his top stock picks check out the video above.