Our thinking

ESG: Love in the time of coronavirus

19 June, 2020

ESG funds – those that consider the environmental, social and governance credentials of the companies in which they invest – have been gaining momentum for many years now. The Covid-19 crisis may prove their coming of age.

The argument for ESG is clear: your money goes towards making the world a better place while earning you better returns. Research by Charles Stanley Wealth Managers found that ESG funds are more likely to outperform traditional funds over every timescale from 12 months to 10 years. Yet many in the industry were still to be won over, seeing ESG as a fad for the good times.

Covid-19 looks to have changed this. While traditional funds have tended to flounder, ESG funds have generally weathered the storm. For example, leading ESG fund Baillie Gifford Positive Change did not make any changes to its holdings during the Covid-19 ‘sell-off’ period in March, confident that they had already planned for the long-term. The result: an impressive bounce back that led to its recognition as the best-performing fund in its entire sector over a three-year period (110.5% vs a benchmark of 17.13%). ESG funds are proving their mettle.

This performance has not gone unnoticed. Over the last three months, while net outflows across all European-based funds stood at €148bn, investment in ESG funds actually grew by €30bn. Even the most hardened cynics are beginning to love what ESG funds are doing, which is good news for everyone. Because where the money flows is where the future is made.

By Ben Wood