How Has ESG Performed During The Pandemic? | The Corona Correction | Refinitiv
Welcome to the Corona Correction series in association with Refinitiv, I'm your host Roger Hirst. ESG investing, that's environmental, social and governance, remains controversial for many, but it has been gathering momentum within corporate management and institutional investing. But will corporate retrenchment due to the Coronavirus outbreak put the ESG theme onto the backburner? I spoke with Refinitiv's Global Head of ESG Proposition, Elena Philipova, to see how ESG styles have performed over the last couple of months. Although what we're living through is a very unfortunate disaster, I think it's creating and giving us a quite interesting opportunity to test some ESG hypotheses. And those hypotheses are it's commonly believed that ESG is a very good risk management factor and theme. So ESG products, companies, portfolios should perform more stable during bear markets, should experience less volatility. So that's one thing we can test. And the other question is, are asset owners asking for such products only when they can afford it in bull markets? And is the interest, is the volume of assets allocated for sustainability products going to sustain or decrease? So we're only in the initial first couple of months, but initial analysis using Refinitiv data seems very promising. It's providing very interesting and positive insight. So I can give you a few examples. The majority of the ethical funds in our Lipper database, have outperformed on their respective technical indicators, the peer groups that they're part of, in the months of February and March. Which is a very positive signal. We also see the top 20 percent of the ESG stocks outperforming the U.S. market in the recent sell off. And more importantly, this is also true when we adjust for sector allocation. And one contributing factor to this is what we're seeing is that ESG firms are having smaller EPS cuts than the ESG laggards. So the leaders are showing smaller EPS (Earnings Per Share) cuts than the laggards. And in terms of asset allocation and capital going torwards ESG products, what we've seen in the month of March is that ESG ETFs (Exchange Traded Funds) are experiencing smaller outflows, as well as the year-to-date results are still positive when compared to the massive outflow in equities that we've seen overall. So it looks very positive, but I guess I would like also to challenge us a little bit and the conversation we're having, because it illustrates the status quo, it illustrates the business world as we know it, as it exists in the past. And right now that's what needs to change. The current business world is completely obsessed with short term profits and performance. And we need to grasp this unique opportunity to rethink and rebuild our conversations, the way we think about our investments and the way we make decisions. As we celebrate the World Earth Day on April 22nd, it is really important to acknowledge and accept the fact that the pandemic crisis we're living in right now, is contributed and is being influenced by the environmental crisis that is upon us as well. So these two themes are very much interrelated and interconnected. There is broad scientific consensus that things like climate change, biodiversity loss, deforestation, are one of the main drivers of pandemic risks that are upon human well-being and economic development. So the risk will continue to increase and rise unless the recovery packages and investments and pacts that we put forward, and nations around the world put forward to help societies recover from this pandemic are green. Green and resilient. Obviously, governments are presented with very fundamental questions on how to allocate the limited public funds available in a socially just and green way. But more importantly, it's the private funds which have the biggest potential for positive impacts. And we all should be asking ourselves what future do we want to finance? What future do we want to see ourselves and our children and future generations living in? And make those conscious decisions. Early indications are that investors have stayed engaged with the ESG theme throughout the period. And there has been some notable outperformance against their key benchmarks. ESG allocations have remained sticky throughout this period, displaying only small volumes of outflows, and if ESG themes are providing some safety in this maelstrom, then it's worth investigating those opportunities regardless of your persuasion towards this framework. We'll see you later with another update.