The coronavirus pandemic and its economic fallout will trigger a ‘skyward surge’ in sustainable, responsible and impactful investing over the next 12 months, affirms the CEO of one of the world’s largest independent financial advisory organisations.
The prediction from the boss of deVere Group, which has more than $12bn under advisement, comes as Bloomberg analysis reveals that the average Environmental, Social and Governance (ESG) fund fell by half the decrease registered by the S&P 500 Index over the same period during the Covid-19 crisis.
ESG refers to a class of investing also known as “sustainable investing.” The umbrella term covers three main factors. ‘E’ is for ‘environment’ and includes issues such as climate change policies, carbon footprint, and use of renewable energies. ‘S’ is for ‘social’ and includes workers’ rights and protections. ‘G’ is for ‘governance’ and includes diversity of the board and corporate transparency.
Mr Green comments: “The coronavirus pandemic will trigger a ‘skyward surge’ in sustainable, responsible and impactful investing over the next 12 months for three key reasons.
“First, before the pandemic, research has revealed that investments that score well in terms of ESG credentials often outperform the market and have lower volatility over the long-run.
“Since the Covid-19 public health emergency up-ended the world, the latest broad analysis shows that ESG funds have typically continued to outperform others.”
He continues: “Second, the coronavirus pandemic has underscored the vulnerability and fragility of societies and the planet.
“It has underscored that increasingly companies will only survive and thrive if they operate with a nod from the wider court of public approval.
“It has underscored the complexity and interconnectedness of our world in terms of demand and supply, in trade and commerce – and how these can be under threat if not sustainable.”
Mr Green goes on to add: “Third, demographic shifts will support the trend. Millennials – those who were born in the time period ranging from the early 1980s to the mid-1990s and early 2000s – cite ESG investing as their top priority when considering investment opportunities.
“This is crucial because the biggest-ever generational transfer of wealth – likely to be around $30trn – from baby boomers to millennials will take place in the next few years.”
In January, deVere Group carried out a global survey that revealed 77% of millennials said that Environmental, Social and Governance (ESG) investing was their top priority when considering investment opportunities.
This survey highlighted that whilst traditional factors – such as anticipated returns (10%), past performance (7%), risk tolerance (4%) and tactical allocation (2%) – are important factors in millennial respondents’ investment decision-making, they are no longer enough by themselves.
Nigel Green concludes: “ESG investing was already going to reshape the investment landscape in this new decade – but the coronavirus will quicken the pace of this reshaping.
“Investors are increasingly aware that it is possible – and increasingly necessary – to make a profit while positively and proactively protecting people and the planet.
“As such, they will be making investment decisions after measuring the sustainability and societal impact of a sector or company as these criteria help to better determine their future financial performance, or in other words their risk and return.”