ESG funds are performing better under the current coronavirus-fueled financial crisis than the traditional funds that might previously have been considered safer bets for investors.
According to a Bloomberg analysis, the average ESG fund fell by about 12%, half the decrease recorded by the S&P 500 Index over the same period.
Proponents of sustainable funds have long made the argument that, because they screen for environmental sustainability, social responsibility, and good governance, ESG funds are more stable and can make more money for investors in the long run.
Over the long term, I think if anything this would likely accelerate the focus on ESG from an investor standpoint"
A group of 300 mutual funds that integrate ESG factors into their investment decisions attracted $21.4bn in new money in 2019, compared with $5.4bn a year earlier, according to data from Morningstar.
However, the recent volatility in financial markets due to the coronavirus pandemic investors are grilling companies to make sure have taken steps to manage nonfinancial risks related to matters such as climate change, board diversity or human rights issues in the supply chain.
"There is obviously a lot of volatility and a lot of big open questions just in the very near term that need to get answered," Jeff Meli, global head of research at Barclays told the WSJ. "…Over the long term, I think if anything this would likely accelerate the focus on ESG from an investor standpoint."
Barclays will begin providing ESG assessments for each of the companies that it covers.
In a note to clients, Citigroup said investors are asking more questions about issues such as employee benefits and mortgage relief, with the goal of identifying corporate strategies to limit the economic damage from the pandemic.