Is ESG-focused investment an upside to the Covid-19 pandemic?
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Is there an upside to lockdown, a modern-day law of positive, if unintended consequences?
It’s arguable that even when enveloped by this odious pandemic it has been possible to identify optimism, unexpected cheerfulness and positivity.
For example, spending so much time indoors has undoubtedly strengthened our love of the great outdoors where we’ve enjoyed hearing prolonged spells of birdsong and relished the appearance of much clearer, more vividly coloured skies.
It’s also reasonable to suggest that many of us have been humbled by the kindness that some people, often strangers, have frequently displayed, while a sizeable number of folks have taken the time to consider their lives and reassess their priorities, mindful that time is precious.
Perhaps most significant of all is an enhanced appreciation of, and love for, our families - especially when restrictions have meant we’ve been unable to see them face-to-face, hug them and hold them, for so long.
This isn’t a particularly lengthy list, but it is an important one because eventually we will return to normal life armed with fresh wisdom and our values reaffirmed, acutely conscious of another fact of life which declares that we receive in return to what we give.
It follows that as we (hopefully) career towards a post-pandemic world, we may have reached a pivotal point in human history. If so, is there a cause with which investors can become involved, one which could help make a lasting difference to the lives of our children and grandchildren?
Almost 16 years ago, a UN-backed affiliation of institutional investors created the Principles for Responsible Investment which defined responsible investment as “a strategy that incorporates environmental, social and governance (ESG) factors into investment decisions.”
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Since 2005, ESG-focused investment has evolved, slowly at first, after being adopted initially by environmental groups, though since the pandemic’s unwanted arrival, the flow of investors’ money into mutual funds which endeavour to pursue an ESG-focused investment strategy has become a raging torrent.
According to stock market data provider Morningstar, during the second and third quarters of 2020 alone, $150 billion of new money went into ESG-focused funds, more than the total for the whole of 2019. The firm estimate that $1.2 trillion is invested in almost 3,800 ESG funds worldwide.
The burgeoning popularity of ESG-focused investment has received a pandemic-inspired fillip. Given the time to consider such matters, many investors have been swayed by a persuasive argument which stresses the ethical and financial benefits of investing in companies that consistently conduct themselves properly by doing the right thing. Conversely, companies that fail or refuse to embrace ESG principles are increasingly perceived as higher risk, less attractive propositions.
Moreover, while Morningstar’s figures confirm that ESG-focused investment funds are no longer the sole preserve of committed environmentalists, the performance of the sector’s leading exponents bears comparison with competitor funds in other sectors.
Consider, for instance, Baillie Gifford’s £1.3 billion open-ended Positive Change Fund. In the 12 months to 31 December 2020, the fund’s value grew by more than 80%; the year before (the fund’s first), the rise was a more modest, but still impressive 25.8%.
Another comparative newcomer to ESG-focused investment is the Montanaro Better World fund, still relatively small (it’s worth just £37 million), although during its first year of operation (2020), it grew in value by almost 39%.
But it’s not just ESG newcomers that are doing well. Some wealth management firms have been longer-term advocates of ESG, investing over several years in funds such as the Liontrust UK Ethical fund which has grown by 150% over the last decade.
Clearly, investing in companies that consistently do the right thing isn’t necessarily a strategy designed to make you poor, so can we take advantage of one of the pandemic’s unintended consequences?
We could, perhaps, begin by recalling Solomon’s oft-quoted words to his son: “A good man leaves an inheritance to his children’s children.”
Parents and grandparents who, over the past 12 months, have alternated between exasperation and frustration; zig-zagged between annoyance and concern and may now see relief on the horizon have an opportunity to apply the wisdom they’ve accumulated.
Investment is very rarely a one-way route to untold riches, but what has happened since March 2020 will undoubtedly affect our children and grandchildren and investors can make a difference to their lives by helping to create a more permanent change in the corporate world.
Will ESG-focused investing cure the world’s ills overnight? Of course not. But as we hopefully soon emerge from a lost year, we have to start somewhere.
THE WEEK IN NUMBERS
- 71% - Research by property website Zoopla suggests the number of agreed property sales that took place between 8 July 2020 and 7 January 2021 were 71% higher than the same period last year. Transactions are expected to come to a screeching halt when the stamp duty holiday ends at the end of March.
- £1.4 trillion - New US President Joe Biden has wasted no time calling upon lawmakers to agree a $1.9 trillion (£1.4 trn) rescue package to boost the economy and raise the minimum wage to $15 an hour from the current federal low of $7.25.
- 203.7 million - Ubiquitous broadcaster Netflix has announced that by the end of last month it had signed up an incredible 203.7 million subscribers, a leap of 37 million in the year. More than 8.5 million joined in the last three months of 2020.
Itchy feet: the new normal
Read Peter Sharkey’s blog exclusively at www.moneymapp.com/blog