The coronavirus could prove to be a pivotal turning point for sustainable investing. ESG investing, those where investment strategies focus on environmental, social, and governance responsibilities, have come into sharper focus since the COVID-19 outbreak.
According to Morningstar, an ESG research firm, sustainable investments had record inflows during the first quarter of 2020. This, despite a turbulent market at the beginning of the year. In fact, many of those types of funds outperformed the traditional market.
While some critics say that ESG investments are a bull-market occurrence, others cite that it marks a fundamental change in investment philosophy.
Goldman Sachs recently noted to its clients: “Prior to this crisis, there was a meaningful and increasing focus on ESG investing, and it is likely that this focus will only increase following the coronavirus.”
The pandemic has radically altered society in many ways, including the way that people invest their money. Some stock performed better because of stay-at-home orders, including Zoom and Netflix. Meanwhile, travel companies and retailers saw falling stocks. But, some of March and April’s worst-performing stocks are making a comeback as the economy begins to open back up.
But some say the population’s values have changed and it could alter where investors place their money. In 2019, sustainable investments expanded their reach and had a pretty good year. Thus far in 2020, ESG investing is off to a great start with $10.5 billion of inflows in the first quarter. Last year saw less than half of that.
Many analysts say the virus is making investors more socially and environmentally conscious and will keep the momentum going. Investors are more likely to scrutinize how companies have responded to the pandemic.
JP Morgan noted to its clients: “The rebound in civil society has been impressive, with an increase in volunteering, social cohesion, community support, and focus on public good vs. private freedoms. We see the COVID-19 crisis accelerating the trend to ESG investment.”
Values aside, it’s important to point out the obvious — ESG investments are proving to be quite lucrative and competitive. The funds offer many of the same comparable returns as traditional markets and, in some cases, beat the market.
For instance, the Nuveen ESG ETF has yielded a 10 percent return this year, and the iShares ESG ETF has returned 0.6 percent for the year thus far. Compare that to the S&P 500, which is down by a full percent for the year.
Goldman Sachs said corporate responsibilities are likely to play a large part in where investors move their money in the future.
“In addition to the environmental focus, the emphasis on corporate responsibilities towards stakeholders, including employees and suppliers, is likely to grow. As a function of government intervention or just moral persuasion, shareholder value in the form of share buybacks and dividend payments may be less prioritized.”