How and Why Has COVID-19 Affected ESG?

This blog post has been written in collaboration with Psigma Investment Management, who provides a wholly personal approach to investment management. Their established expertise in multi-asset investing is available through a range of investment solutions for clients, pension schemes, trusts and charities.

Investment Manager & Head of Socially Responsible Investing, Mike Myers, provides insights below.  

The coronavirus pandemic has caused shockwaves across many businesses and industries. More prominently, however, the crisis has also intensified long-term trends that were in place beforehand. For example, the pandemic has cast a spotlight on environmental, social and corporate governance (ESG).

A study by Boring Money has found that two-fifths (40%) of advisers and consumers have reported a higher interest in sustainable investing as a result of the coronavirus pandemic. As well as this, the Great British Sustainable Savers Census survey found that 89% of 18 – 44 year olds believe it is important that a fund manager offers sustainable investment options.

How are businesses reacting to this heightened need for social and environmental responsibility?

Since the start of the year, the coronavirus has been detected in almost every country in the world. This has made the outbreak one of the most economically destructive events of the past 100 years.

The pandemic has further highlighted the need for responsible investment and environmental, social and governance research (ESG). Many investors are viewing the impact of COVID-19 as a wake-up call that accelerates the need for a different approach to investing. This is due to the parallels that have been drawn between the effects of a pandemic and other global issues such as climate change. For example, if the world can change their behaviour to fight a virus, can we do the same to avert a climate disaster?

More important than ever before, it is imperative that companies engage and adjust their processes to respond to heightened sensitivity towards social issues.

Is the coronavirus a turning point for ESG investing?

Time will tell whether the coronavirus pandemic will be a turning point for ESG. On the evidence seen so far, it would appear that it is. Crisis conditions have boosted the importance placed on ESG metrics and has served a powerful illustration as to why investment risk matters.

Businesses need to be mindful about their impact on the environment and how they manage themselves effectively, especially during unexpected and unprecedented times.

Mike Myers, Psigma says:

“COVID-19 has highlighted many companies ability to react, evolve and adapt. Those that are more resilient to ‘shock’ displaying how their product and/or services can serve their consumer under the stress caused by the pandemic. There was already momentum building for the need to integrate ESG factors into the investment decision-making process. COVID-19 has emphasised why it is important that a robust assessment of these non-financial factors is crucial, and being able to digest and interpret the data and analysis can lead to the identification of more resilient companies.”

“The pandemic has drastically changed consumer habits in the short term due to situation we find ourselves in. The long-term effects are still to be seen, however the importance for businesses to show that they are ‘good’ corporate citizens and ensure that social responsibility is a key principle within their corporate philosophy continues to grow, as we have seen with this trend over the past few years. Profit and prosperity shouldn’t be at the expense of people and the planet.”

“To quote António Guterres, Secretary-General, United Nations,

“Everything we do during and after this crisis [COVID-19] must be with a strong focus on building more equal, inclusive and sustainable economies and societies that are more resilient in the face of pandemics, climate change, and the many other global challenges we face.”“

KLO Financial Services

At the beginning of the year, our blog post “The Rise of Ethical Investing” highlighted how assets held in ethical funds have more than trebled over the past decade. The coronavirus pandemic, it appears, has increased the need for ethical investing even further.

Although there is often the misconception that ethical funds that incorporate socially responsible investment and environmental social governance will perform worse than those without such restrictions, this is not true. Evidence has shown that companies that are more ethically responsible can perform equally well.

If you would like to find out more about ESG and COVID-19, talk to one of our experienced financial advisers by calling 01926 492406.