14 May What will demand for ESG investing look like in a post COVID-19 world?
Before COVID-19, the demand for ESG investing was on the rise; a trend that we expect to accelerate as the economy begins to recover. The market downturn caused by the COVID-19 pandemic has demonstrated what many sustainably-minded financial planners have been asserting for a while; the resilience of portfolios that take ESG factors into account.
The reason for this is that investing through an ESG lens scrutinizes the environmental, social and governance criteria of companies, enabling investors to make informed decisions about a company’s durability and their preparedness to withstand certain crises. For instance, companies strong in ‘social’ criteria are better placed to withstand a pandemic. In particular, companies that already had established flexible and remote working practices have weathered this sudden transition to closed borders, cities and businesses, better. Similarly, companies strong in the ‘environment’ criteria are more resilient to oil price fluctuations and a transition to clean energy, due to little to no exposure to the fossil fuel value chain. It’s the result of this scrutiny that explains why ESG portfolios have outshone traditional portfolios during the market downturn, and will drive demand for ESG investing in a post COVID-19 world.
In the past sustainable investing has been plagued with claims that adhering to its principles would mean sacrificing some financial return. However, this view is outdated. A number of studies (including our own divestment report), reveal that there is a positive correlation between high ESG scoring and superior financial performance.
We anticipate that demand for ESG investing will accelerate rapidly as the economy begins to rebuild. Corporate leaders will be held more accountable by shareholders for ESG performance than ever before, and, having endured COVID-19, individuals and organizations alike will understand the importance of preparing for and preventing other global crises, such as the climate crisis.
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