WHY NOW – THE WORLD AROUND US
ESG funds proved their mettle during coronavirus outbreak
Investors are flocking to ESG strategies
With more than 59 million jobs under threat in Europe[1] and sharp GDP drops across the region, one might expect corporate ethics to be low on investors’ priority lists right now.
In fact, nothing could be further from the truth. Investment funds chosen for their environmental, social and governance (ESG) credentials have actually done better than their ‘traditional’ counterparts since the world went into lockdown in March.
On one hand, investors have flocked towards ESG funds, rather than away from them. Amundi’s analysis of exchange-traded funds (those which are traded on the stock exchange) in the US shows that ‘green’ funds have grown by around 1.28%, a full 1% more than conventional rivals.[2]
Cumulative flows into US-listed ETFs during the Covid-19 crisis (USD bn)
But that’s not all: ESG funds have actually delivered greater returns than their counterparts, too. Even in March, when investors scrambled to sell their positions, sustainable funds withstood much of the damage. The MSCI World index, which monitors large and medium-sized equities around the developed world shed a whopping 14.5% of its value - but 62% of large-cap ESG funds outperformed the average.[3]
Research firm Morningstar, which analysed nearly 5,000 European funds between 2010 and 2019, found that 59% of sustainable funds which survived the period outperformed their traditional counterparts.[4] Between September 2011 and April 2020, the FTSE’s dedicated index of climate-conscious companies outperformed its main global index by 3.7%.[5]
Another key factor is that ESG funds, by their very nature, tend to underweight (that is, place less emphasis on) traditional industries such as oil, gas and real estate, whose future suddenly looks very murky.
Instead, they lean towards progressive areas, like technology and healthcare, which may thrive in the post-Covid world of remote working and social distancing (since the pandemic erupted, shares of Apple, Amazon, Facebook, Netflix and Microsoft have all reached record highs).
Of course, this is no guarantee of success. Within every industry, green or otherwise, there will be winners and losers in the new reality. But we believe that ESG, with its strict principles and rigorous, rules-based approach to stock selection, is well-equipped for the current uncertainty.
We believe success in ESG relies on rigorous research, going out and having in-depth conversations with company directors.
CAROLINE LE MEAUX,
Amund's Head of ESG Research, Voting & Engagement
In our opinion, success in ESG relies on rigorous research, going out and having in-depth conversations with company directors.
For this purpose, Amundi has built a team of 35 experts in ESG quantitative and qualitative analysis, Voting and shareholder dialogue, ESG development and advocacy.[6] These experts use a proprietary methodology, based on 37 criteria probing all aspects of a company’s underlying strategy.
Yes, ESG stock selection is a highly skilled, complex process, but it’s got discipline baked into its very core - and, at a time when inequality and malpractice have never been more prominent in the global media, it’s got zeitgeist on its side.
[1] As of August 2020. Source: https://www.nytimes.com/2020/08/24/business/europe-economy-layoffs.html
[2] As of 18 May 2020. Source: https://research-center.amundi.com/page/Article/2020/05/The-day-after-3-ESG-Resilience-During-the-Covid-Crisis-Is-Green-the-New-Gold
[3] https://www.responsible-investor.com/articles/no-surprise-sustainability-funds-outperform-the-market-despite-covid-19
[4] https://www.morningstar.com/content/dam/marketing/emea/shared/guides/ESG_Fund_Performance_2020.pdf
[5] https://www.ftserussell.com/blogs/how-have-climate-indexes-fared-during-coronavirus-sell
[6] Amundi Asset Management as at 30 September 2020.
IMPORTANT INFORMATION
Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 30 October 2020. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks.
Past performance is not a guarantee or indicative of future results. All investors should seek professional advice prior to any investment decision, in order to determine the risks associated with the investment and its suitability.
Date of first use: 17 November 2020
Doc ID# 1415729
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