Sustainable investing is positioned well for the future
The crisis has renewed investor interest in sustainable investing – for example, by focusing on the environmental, social and governance (ESG) factors that can help determine companies’ resilience in challenging times. There’s also greater emphasis on how the recovery from the coronavirus crisis can be a “green” one, as countries seek to ensure that their long-term investments – particularly in infrastructure – also support sustainability goals.
Why sustainable investing now?
The ESG space has held up quite well during the market volatility we’ve seen this year (see Chart 2), perhaps because the coronavirus pandemic seems to have accelerated many ESG-related trends that were happening already. Companies and governments have noted that the shutdown created a large drop in carbon emissions around the world – prompting debate about how to turn this sudden shift into more lasting change. Sustainable investing is also now at the forefront of many policy and stimulus debates as well – including the recent announcement of Europe’s EUR 750 billion recovery fund (a coronavirus stimulus package focused on digitalisation and climate protection), and the policy proposals by US presidential candidate Joe Biden centred on clean energy. In today’s business environment, board diversity and executive compensation are also under scrutiny.
Chart 2: ESG investing has outperformed this year
MSCI USA ESG Leaders Index vs S&P 500 Index (year to date; indexed to 100)
Source: Bloomberg. Data as at 28 July 2020.
How to implement this idea: look for ESG-integrated strategies and/or impact strategies
Consider investing in strategies that focus on ESG factors not only as an additional layer of risk management, but for growth potential. Also consider sustainable strategies or “green bonds” as part of an allocation to impact investments. Impact strategies have a clear and quantifiable causal connection between the investment they make and the resulting impact. (Green bonds specifically raise funds dedicated to projects that have a positive environmental benefit.)