22 Apr The future of Investment: ESG Funds outperform index
Impact investors with ethical portfolio funds have continued to show strong performances despite the impacts of the ongoing coronavirus crisis. These organisations believe the pandemic will reveal businesses that are operating unsustainably and drive leaders worldwide to accelerate their efforts towards tackling climate change.
A few years back London-based WHEB Asset Management collaborated with Australian fund manager Pengana, a group with over $3 billion valued investors to deliver sustainable finance options for its clients. While the fund did experience a decline during March, the overall figure exceeded the MSCI index benchmark, a measurement of stock market performance within a particular area. The findings replicate recent research by investment specialists Fidelity, which suggests a significantly strong trend between stronger market performance in businesses operating under higher environmental, social and governance ratings.
Researchers at Fidelity explain that when commencing their studies the findings clearly showed that businesses with sustainability traits tend to have more strategic and conservative management teams and consequently show greater resilience in challenging times. The data from the Fidelity report strengthens their theory.
The specifics of the market crisis caused by COVID-19 have resulted in some industries, such as health and technology naturally outperforming other markets. Impact Investors believe this phase has also shown the benefits of ESG investing, which tends to focus less on businesses with higher debt levels and instead on those that are more aligned with long term sustainability goals.
Sustainability is inevitably the future and other global sustainable funds have experienced value increases in the last month, bucking the negative growth trend displayed by most during April. Some of the top holdings for sustainable funds lie with technology majors such as Apple and Netflix, technology stocks that have seen a surge as our communities adapt to isolation measures.
ESG funds with technology holding have done very well because the technology group has been performing very well too. Sustainable investors highlight that the old way of thinking that appealing any level of ethical stance will hinder financial gain is simply not true.
The challenges we are facing now have clearly highlighted structurally challenged markets such as big oil and the aviation sector. In the long term, sustainable investment supporters believe we should continue to steer away from investing in oil and look towards alternative and more sustainable options.
Businesses involved in ESG funds are anticipating a rise in social obligation with investors and in our society in response to the impacts of the pandemic. People are starting to favour sustainable investment plans as a more resilient and viable investment option for the long term, and this has been clearly shown by the recent events. A survey by Cerulli Associates showed that over 75% of European Banks involved in the report were preparing for a significant rise in demand for ESG funds.