Socially responsible investment (SRI) has to deliver both sustainability and higher risk-adjusted returns if it is to thrive and become the strategy of choice, according to a new study by Swiss private bank Pictet & Cie.

The study advises investors to identify sustainability in companies’ financial fundamentals by integrating the factors that make companies more stable and resilient over time while delivering superior risk-adjusted returns.

Announcing the study, Pictet said factors such as moderate asset growth, low leverage and concentrated ownership can not only secure companies’ own survival but also contribute to the stabilisation of financial markets and the economy as a whole.

SRI portfolios did not provide significantly better downside protection during the crisis, and Pictet said making SRI portfolios less risky in a strictly financial sense was the main motivation behind the study.

Having tested the relative performance of the financially improved sustainability portfolios against their respective conventional MSCI benchmarks over the last decade, Pictet characterised the results as “encouraging”.

The bank said the study confirmed its hypothesis that optimising screened portfolios from a financial sustainability point of view can make them more resilient to losses, and tends to outperform in most environments.

Pictet sustainability expert Christoph Butz said that for too long SRI investors have been led to believe that extra-financial research alone could shield them from market adversities - an assertion which is not borne out by facts.

“Something else is needed. To tilt ESG-screened portfolios towards more financial sustainability opens up an interesting perspective. The promise of lower risk and higher returns (both in the extra-financial and financial dimension) finally seems to be within reach,” Butz.

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