Environmental, Social and Governance investing now more mainstream
The current economic and social disruption, as well as the collapse of oil prices – which turned negative for the first time ever this week – has driven responsible and impactful investing deeper into mainstream finance.
At the beginning of this year, I stated that Environmental, Social and Governance (ESG) investing would restructure the investment landscape over the next decade. However, the coronavirus pandemic has radically accelerated the trend.
Indeed, even before the COVID-19 outbreak, ESG investments regularly outperformed the market and enjoyed lower volatility over the long-term.
In addition, and perhaps more remarkable, is the fact that investments with a strong ESG presence are still continuing to outperform during the pandemic-triggered stock market crashes. We’ve seen extreme volatility in major indices, with some freefalling 20%.
Of course, this will be increasingly appealing to retail and institutional investors who are seeking decent returns during these unprecedented, tumultuous times.
Moreover, the collapse of oil prices – which will likely not rally to pre-crisis levels any time soon – has also contributed to ESG investments moving skywards to the pinnacle of the performance charts and keeping them there.
This is because ESG funds, generally speaking, circumnavigate oil stocks. As such, their performance will not be adversely affected by the drop in share prices.
There is a broader, mounting force behind the surge in Environmental, Social and Governance investing, and the current circumstances have, in many respects, acted as a wake-up call.
It reinforced the fact that our health depends upon healthy ecosystems; we must ensure supply chain sustainability; and businesses with strong corporate governance and good business practice tend to perform better during tough times and are ultimately best-placed, looking forward.
This increasing collective recognition of mutual responsibility tallies perfectly into the ESG investing narrative.
The shared wake-up call as a result of the coronavirus pandemic and the search for profits during these extraordinary times are propelling responsible, sustainable, and impactful investing further into the conventional.