-It seems ESG investments are doing well at this time. Why is that?
‘It’s important to recognise that the term ESG investments can cover a broad range of asset types and classes but passive ESG funds (ETFs) have been ‘doing well’ in a couple of way.
‘Firstly, they have proven more resilient to recent market shocks than conventional counterparts – 60% of US and EU ESG ETFs outperformed their non-ESG benchmarks.
‘Second, their attractiveness from both a moral and sustainable investment perspective has exploded in the light of Covid-19.
‘Investors allocated $12.2bn of capital into ESG funds in the first four months of 2020. This is over double the inflows in 2019.’
-Do you think that the difficulties we are facing now may accelerate the trend towards ESG investing?
‘Post-Paris Agreement and in the run-up to COP 26 [the United Nations Climate Change Conference, which was due to be held in Glasgow], the trend for ESG in institutional investment was already hurtling along.
‘This has somewhat been driven by regulation but it’s also fair to say institutional investors (eg pension funds) are now just getting the business case.
‘On regulation, it’s worth noting the JFSC is currently consulting on how to ensure the quality of Jersey-based sustainable investment products.
‘Interestingly, Covid-19 seems has started the fire for ESG in the retail space. You, me, our friends and family members have had to face up to the fragility of our planet and the susceptibility of our health and social structure to environmental stresses.
‘Recent research from Federated Hermes says 85% of IFAs have seen a rise in client ESG requests and our laptops have been awash with a ESG webinars and Zoom calls, hosted by asset managers to engage clients and intermediaries.’
-What areas of ESG investing are doing well at this time?
‘Again with respect to ETFs, those ESG funds doing well are overweight in technology (eg Zoom) and healthcare, and underweight in the heavy polluters (eg airlines) and fossil fuels.
‘Covid-19 grounded the travel industry and we can all acknowledge the challenges faced by airlines now and for some time to come.
‘Likewise, we’ve not been driving our cars or so prolifically exporting our goods on cross-continental tankers, so global demand for fuel has dropped significantly, impacting the price of oil stocks. At one point, oil traders were paying to offload their surplus.
‘Longer term, it will be interesting to see how the market develops for both Covid and non-Covid-related ESG bond issuance.
‘Billions have shifted into Covid bonds over the past few months, with cash being used for healthcare, emergency infrastructure etc but perhaps the greater opportunity will be a wave of non-Covid ESG bonds, designed to help the world recover and #buildbackbetter.’
