08 June 2020
In the past, some may have thought of Environmental, Social and Governance (ESG) funds and Socially Responsible Investing (SRI) as a trend or a short-term fad, but as a theme it is becoming increasingly influential in the global sector.
Because of the coronavirus pandemic, the move towards sustainable investing has accelerated. Resistance has reduced dramatically and up to five years of progress has been made in five short months. The opinion of many IFAs has changed and many more now see the relevance of socially responsible investing. According to a survey carried out by the FT and Savanta, a market research company, almost nine in ten wealth managers polled believe that the Covid-19 pandemic will result in increased investor interest in ESG investing. It’s become a hot topic and at RSMR we’ve seen enquiries increase dramatically in recent months. Sustainable funds have performed well over the last quarter. Across Europe, sustainable funds saw inflows of €30bn in the first three months of 2020, compared with outflows of €148bn across Europeanbased funds overall. The data also shows that while net inflows slipped to £348m during March, they recovered quickly to £1.05bn in April. Active management and investment in growth companies has led to improved performance, as has the avoidance of certain sectors. Being underweight in cyclical, industrial, banking and mining whilst overweight in IT and healthcare sectors has
also made a positive difference. Sustainability matters now more than ever and the interest in ESG investing will no doubt continue to increase as this crisis has highlighted the importance of responsible businesses in society. Companies that decreased executive pay during the pandemic to share the burden and that treat staff well will be considered as investible, while businesses that have failed to support staff and society during this time could well be avoided. In the past, wars have been the main catalyst for change in technology and social attitudes, but the coronavirus pandemic has caused a similarly epic reaction. People have come to the realisation that we need to act differently. The way that we interact will change, the things that we buy and sell and how we’ll go about those activities will be different. The longer-term sustainability picture could have many different elements; supply chains may be shortened as we look
to source produce from our own shores and an analysis of efficiency and energy could also be part of the shift. Given the changes that the world has seen over the last few months and the future prominence of sustainable investing, we are considering how the needs of investors will evolve and are looking at how we will refresh our approach to our SRI rating.
Investors used to back ESG funds because of their moral views, but now they are also focussing on what impact environmental, social and governance factors have on returns. The coronavirus crisis has enhanced not only the importance but also the appeal of sustainable investing.
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