Green shoots of hope: How sustainable is performance spike in ESG funds post-pandemic?
Covid-19 will trigger 'skyward surge' in impact investing, experts argue
The impact of the coronavirus pandemic will trigger a "skyward surge in sustainable, responsible and impactful investing" due to "structural tailwinds" associated with strong ESG management, according to several investment professionals, who believe investors will "long remember" how companies have behaved in the current crisis.
The short-term outperformance of ESG portfolios, however, could be the result of the plummeting oil price according to some, following the recent oil price war between Saudi Arabia and Russia.
The issue of corporate governance has come to the fore over recent weeks, with thousands of end consumers threatening to boycott chains including Wetherspoons, Sports Direct and Topshop for refusing to pay their staff, or for remaining open amid ambiguity regarding what is classed as an "essential business".
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According to data from Refinitiv, companies in the FTSE UK 100 ESG Select index - which comprises the "top 100 UK-listed companies with strong ESG practices" - has comfortably outperformed the FTSE 100 index since the sharp market sell-off began on 21 February.
This correlates with research from Chase de Vere Group, which found ESG funds have "typically continued to outperform others" since the public health emergency began, with the average responsibly-invested fund falling by half the amount registered by the US S&P 500 index over the same period during the pandemic.
CEO and founder of Chase de Vere Group Nigel Green said the pandemic will trigger a "skyward surge" in ESG investing over the next 12 months.
"Before the pandemic, research has revealed investments that score well in terms of ESG credentials often outperform the market and have lower volatility over the long run. Since the Covid-19 public health emergency upended the world, the latest broad analysis shows that ESG funds have typically continued to outperform others," he said.
"It has [also] underscored that increasingly companies will only survive and thrive if they operate with a nod from the wider court of public approval."
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While ESG investing was already on track to "reshape the investment landscape in this new decade", according to the CEO, he believes the coronavirus will "quicken the pace of this reshaping".
Jamie Jenkins, head of responsible equities at BMO GAM, said the 'S' in ESG - or the social impact aspect - has proven itself to be particularly important during the throes of the pandemic.
"It can take years and years of hard work for a company to earn a leading reputation but only a few missteps to lose it," said Jenkins.
"We believe consumers and investors will long remember how respective companies have behaved in the current crisis."
The benefits of looking after employees will be multi-faceted, according to head of impact investing at EQ Investors Damien Lardoux, who suggested that in the short term, firms that have retained their staff "will be able to go back to normal quicker", while in the longer term they will likely experience a lower staff turnover.
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