When creating a portfolio, it’s important to consider how your investments will hold up during a period of market volatility, and whether you can achieve long-term growth.
The first half of 2025 has been characterised by significant economic uncertainty and as an investor, you may have gained some insight into the resilience of your portfolio.
Fortunately, there has been some recovery since Trump’s tariffs caused markets to crash, but economies around the globe still face difficulties and fears of a recession loom.
Indeed, JP Morgan reports that, while the probability has fallen, there is still a 40% chance that there could be a global recession in 2025.
As an investor, you’ll want to find ways to ensure that your portfolio is able to weather the storm so you can continue building wealth in the long term after any potential short-term upsets.
It may come as a surprise that ethical investing could help you achieve this.
Read on to learn more.
Research shows that impact portfolios often display above-average performance during a recession
If you’re looking to use your wealth to drive positive change in the world, impact investing may be a suitable option.
This involves investing in companies that are driving measurable change, such as businesses developing renewable energy technology, for instance.
It’s a common misconception that prioritising your ethical or sustainable goals by investing in this way often means accepting lower returns.
In fact, research reported by FTAdviser reveals that impact firms could actually be more resilient than traditional businesses.
The study analysed 257 impact firms and measured their performance compared with the MSCI All Country World Investable Market Index – a comprehensive index that incorporates a wide range of investment types and geographical areas.
The results revealed that impact firms showed 0.6% more excess returns during recession months than they did expansion months.
Additionally, impact firms outperformed the benchmark index in many recession months, suggesting that ethical investments may be less sensitive to economic uncertainty.
Overall, the findings showed that many impact firms could be particularly good at withstanding a period of volatility, while also benefiting heavily from upward market movements.
There are several reasons why these ethical investments could be more resilient during a recession.
Impact firms displayed several distinct characteristics that separated them from the benchmark index
When examining why the impact firms appeared to perform so well during a recession, the researchers identified three key characteristics. The companies tended to:
- Operate with stronger margins
- Expand their workforce quicker
- Deploy capital more readily.
These are all behaviours of a business that typically displays strong long-term growth.
The researchers also noted that many impact firms are smaller companies, which may generate faster growth than larger, more established businesses.
Additionally, many of the companies that attract impact investors operate in sectors such as healthcare or energy, which may be less affected by a recession because they provide essential services.
The green sector is the fastest-growing area of the economy
Many ethical investment strategies, including impact investing, focus heavily on sustainability and protecting the environment. These sustainable investments could provide notable returns.
As countries around the globe aim to reduce carbon emissions, the so-called “green sector” is growing rapidly.
For instance, according to the Guardian, Britain’s net zero sector expanded by 10% in 2024, adding £83 billion to the UK economy. This level of growth is three-times faster than the overall UK economy.
As governments continue to invest in sustainability and the sector experiences rapid growth, there could be increased opportunities for businesses.
While past performance doesn’t guarantee future returns, this may mean that sustainable investments offer significant returns in the future.
Ethical investments must be part of a well-balanced investment portfolio
The data suggests that, if you’re concerned about a recession affecting the value of your portfolio, impact investments could benefit you. After all, many impact firms demonstrate more resilience during a market downturn.
Additionally, the green sector is growing faster than other areas of the economy so investing in this area might allow you to generate market-beating returns. This could mean you’re more likely to achieve your long-term goals for growth, despite any recessions.
However, it’s important to remember that these trends aren’t guaranteed to continue in the future.
Also, if you place too much emphasis on specific sectors or regions, you could expose yourself to unnecessary risk.
For instance, solar power companies may see positive growth as governments invest more in renewable energy, so you might decide to concentrate investments in this sector. Yet, if government policy changes or new technology replaces solar power, your portfolio could suddenly drop in value.
That’s why, although ethical investments could offer greater resilience during market volatility, it’s important that you incorporate them into a well-balanced portfolio.
By spreading your investments across many different sectors and geographical areas, you potentially mitigate risk because gains in one area could balance losses from elsewhere.
We can support you in building a portfolio that satisfies your ethical goals while also protecting you from market volatility and generating the returns you need to achieve your financial aims.
Get in touch
If you want to explore your options for ethical investing, we can support you.
Please contact us at hello@ardentuk.com or call or WhatsApp us on 01904 655 330. As an award-winning financial advice company with advisers included in the 2025 VouchedFor Top Rated guide, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.