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Will the popularity of ESG investing continue into 2021?

11th January 2021

After the extraordinary year that was 2020, in which Covid-19 put the brakes on global growth, commentators believed that the continuing rise of environmental, social and governance (ESG) investing might falter.

However, whilst most asset prices took a beating during the initial phase of COVID-19, ESG investments did better than most in the early months of February and March and in mid-March, 66 percent* of ESG funds ranked in the top half of their categories.

The pandemic has in fact brought wider ESG issues to the fore with unexpected urgency. Whilst environmental concerns have rightly played a central role, in the wake of Covid, the world is undeniably a different place and we have seen a much greater focus on social factors, such as employee welfare and the societal responsibility of businesses in a global crisis.

Jenn-Hui Tan, Global Head of Stewardship and Sustainable Investing at Fidelity International comments “corporate leadership teams that prioritise broader stakeholder outcomes are likely to be best placed to survive and thrive despite our twin health and climate crises, and offer the most stable and sustainable returns for shareholders.

One of the challenges the industry faces however is that there is no industry standard or rulebook as to how ethical criteria are applied. Whilst there is considerable overlap, much is still based on interpretation, which can provide challenges for advisers and investors alike.

At Tatton Investment Management, they help to address this issue by combining a sophisticated investment process with a set of negative and positive ethical screens, allowing them to both exclude and seek out companies based on sustainable and socially responsible practices. However, as Tatton’s Head of Portfolio Management, James Saunders explains “it is not good enough to simply buy from an ‘ethical’ fund universe. We always meet the managers and since we are agnostic in fund selection, ask the difficult questions our investors need answering.

While some investment fads come and go, the trends driving the need for sustainable business practices seem to be here for the long-term and are one of the ways advisers can help to future-proof their client’s portfolios.

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*Source: www.morningstar.com/articles/972475/sustainable-equity-funds-are-outperforming-in-bear-market

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