Nobody could have predicted the circumstances brought upon us all by COVID-19. In 2019, a global lockdown would have seemed impractical, unimaginable and the stuff that nightmares are made of. However, now it is a circumstance that most of the world has accepted and even adapted to. Unfortunately, the enormous effect it has had on almost every country has officially made the outbreak ‘one of the most economically destructive events of the past 125 years, a period that includes two World Wars, the Great Depression and the Global Financial Crisis.’ (J.P. Morgan 2020)
Fortunately, after chaos tends to come order and if there is one thing the human species is skilled at, it is problem solving and providing solutions. In this case, many individuals are realising the need for a more sustainable planet. The world was already slowly arriving at this consensus over the last few decades, but it appears the pandemic has catalysed this transition.
Not only are businesses realising that adopting sustainable practices tends to make them more robust in times of crisis, but the average retail investor and consumer is recognising that ethical investments offer the potential for strong financial returns whilst making the world a better place. According to Blackrock data, 88% of sustainable funds in their analysis outperformed their non-sustainable counterparts in the period 1 January to 30 April 2020 (Reynolds, 2020). This period was coincidently one of the most volatile, with investors seeing large dips in the value of their investments.
Most individuals can agree that the pandemic reshaped our working habits and thereby our travel habits. The compulsory lockdown brought news all over the world of reduced CO2 emissions and consequently cleaner air for all of us to breathe. The environmental element of ESG (Environmental, Social & Governance factors) has no doubt been influenced the most by Coronavirus, with the most environmentally taxing industries like airlines, car manufacturers and oil producers taking major hits to their share prices (Ley 2021). However, even the governance aspect of ESG was positively impacted with many companies having to put their employees’ needs at the forefront of their priorities in order to ensure their businesses survived these tough times.
These changes have clearly fast-tracked adoption of ethical and responsible practices by businesses, which in turn has provided investors with a wider range of investment choices. This creates a positive cycle whereby investors start to select sustainability-focused companies, which will influence businesses to adopt such practices, and so on. This is further concreted by the positive returns ESG funds have seen, where ‘in the first 12 months of the pandemic, many large investment funds with ESG criteria outperformed the broader market.’ (Wheildon & Clark, 2021)
The investments flowing into ESG funds is breaking records every year and the fund management industry is quickly adapting in order to avoid being left behind. Whilst we celebrate the fact that our industry is finally taking ethical investing seriously, and that ESG has been dubbed as ‘one of the most important shifts in the investment industry in a generation’, it has also brought about the issue of ‘greenwashing.’ Previously, there has been little regulation on the criteria that must be met in order to market funds as ‘sustainable’ or ‘ethical’. This has led to some of the most popular ESG funds holding investments in the world’s largest carbon emitters (Mooney 2021). The EU is working hard to introduce new rules which are designed to act as green finance regulations, to help tackle this issue. Castlefield has written a separate blog article on this topic, which can be found here: https://www.castlefield.com/news-media/blog/fostering-responsible-investment-through-regulation/
In the meantime, we recommend doing your due diligence on any funds that claim to be ESG focused, this can easily be done by searching the funds screening criteria or the ethos of the fund management house. Our annual Winners & Spinners report gives a good steer on what to look out for: https://www.castlefield.com/winners-and-spinners-report/
Written by Sakshi Bhatia
‘Why COVID-19 Could Prove to Be a Major Turning Point for ESG Investing’, J.P. Morgan, July 2020,
Reynolds, F 2020, ‘COVID-19 accelerates ESG trends, global investors confirm’, Principles for Responsible Investment, September 2020, <https://www.unpri.org/pri-blog/covid-19-accelerates-esg-trends-global-investors-confirm/6372.article>
Ley, R 2021, ‘Has Covid-19 accelerated investors’ ESG priorities?’ Research in Finance, January 2021, <https://researchinfinance.co.uk/has-covid-19-accelerated-investors-esg-priorities/>
Wheildon, E & Clark, R 2021, ‘ESG funds beat out S&P 500 in 1st year of COVID-19; how 1 fund shot to the top’, S&P Global, April 2021, <https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/esg-funds-beat-out-s-p-500-in-1st-year-of-covid-19-how-1-fund-shot-to-the-top-63224550>
Mooney, A 2021, ‘Greenwashing in finance: Europe’s push to police ESG investing’, Financial Times, March 2021, < https://www.ft.com/content/74888921-368d-42e1-91cd-c3c8ce64a05e>
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All information quoted is obtained from sources which we believe to be accurate at the time of publication, but may be subject to change. We therefore cannot be held responsible for the implications of relying on this information.