Through the disruption that the COVID-19 pandemic has brought to the global economy and markets in 2020, sustainable investing (SI) strategies and instruments have delivered comparable or better performance than conventional equivalents. This is a short time-frame and an unprecedented situation, so relative performance should not be directly extrapolated over the longer term, but investors with SI exposure within a diversified portfolio should be encouraged by recent short-term returns.
The crisis underscores the relevance of ESG considerations to company performance and investment returns, and we expect that this will continue to influence corporate and investor actions going forward. We discuss, below, five trends arising or accelerating as a consequence of the COVID-19 pandemic and global mitigation measures, which we think will play out over the next 12 months, affecting the longer-term landscape of sustainable investing.
5 sustainable investing trends
We believe the below trends will play out against a backdrop of expected low global economic growth as a consequence of the COVID-19 pandemic. We also observe continued political support for recovery planning that emphasizes a more resilient future, as well as strengthening SI regulatory frameworks in some regions (especially Europe), which were undergoing development before this global crisis. Consequently, we expect to see the growth in SI assets under management (AUM) of recent years to continue even in a very different economic environment.
A wake-up call for investors
How to invest
- We expect increased investor focus on ESG considerations after COVID-19, with particular demand for greater corporate transparency and stakeholder accountability.
- Elevated importance of ”social” for companies and investors, in particular healthcare, access to medicines, education, sustainable tourism and social bonds.
- Awareness of economic benefits and risk should keep investors focused on environment-related opportunities and the low-carbon energy transition, e.g., renewable energy, sustainable transport, biodiversity and green bonds.
- Structural embedding of SI across asset classes, including those where there has been less progress historically on the inclusion of ESG considerations.
- SI performance benefits should remain evident, as seen during recent market volatility, particularly the defensive characteristics of most common SI approaches, and our expectation for SI instruments and diversified portfolios to generate returns that are comparable to conventional equivalents.