The current Covid-19 crisis has brought attention to many things for investors and clients from global stock market volatility, global recession and climate change.

The UK asset management firm, Schroders has noticed that their clients have become more interested in sustainable investing. Andrew Howard, head of sustainable research at Schroders says: “Sustainable investing has grown exponentially in recent years. In the US, net flows into sustainable funds reached $20.6 billion in 2019, more than four times the previous annual record which was set in 2018. Even so, there has long been a nervousness – among clients and, if we’re honest, even portfolio managers – about how the space would behave in a downturn.

“In terms of performance, we have long argued that sustainable companies should have lower declines due to lower incidence of controversies and occupational mishaps; greater loyalty from customers, employees and even shareholders; and often more conservative balance sheets. There’s also a question of whether asset owners will continue to demand sustainable/ESG (environmental, social, governance) funds in a downturn, or whether ethical investing was a luxury that could only be afforded in a bull market.”

Ethical funds versus non-ethical funds

New research by UK investment platform interactive investor, suggests that ethical funds have fared better than ‘non-ethical’ funds amid the Covid-19-linked downturn in global markets.

Data comparing funds with an explicit environmental, social and corporate governance focus with their in-house equivalents found that four out of six ethical funds produced better returns than their in-house stablemates since the beginning of the year when the outbreak of Covid-19 began to take hold to March 24th 2020.

Over longer periods, five out of six ethical funds produced superior returns than their in-house stablemates over three years, four out of five over five years and two out of three over 10 years.

Myron Jobson, personal finance campaigner, interactive investor, says: “It would be wonderful to think the increase in assets held in socially responsible funds and investment trusts on interactive investor reflects the growth of ethical investing more broadly. But in such a short space of time, it most likely reflects the fact that ethical propositions have held up a little better than the wider market. Nevertheless, this is further proof, were it needed, that investing for good doesn’t have to mean sacrificing performance.

“The coronavirus pandemic has affected all aspects of life and has raised some fundamental questions about how we live and how we work, and the sort of planet we want to live in. It will be interesting to see if this starts to feed through to greater demand for ethically minded investment options.”

Little influence

Scott Gallacher, chartered financial planner (CFP) at Rowley Turton doesn’t believe the Covid-19 crisis has affected client investment choices, he says: “Ethical concerns have been increasingly raised by clients recently so they are clearly an issue but they’ve not been specifically raised since the Coronavirus situation arose.”

Earlier this year Architas published exclusive research conducted amongst the readers of Professional Adviser covering adviser and investor approaches to ESG. You can read it here.

 

Further Reading

Scottish Widows unveils responsible investment and stewardship framework

BlueBay Insights podcast: ESG impacts Q&A

The value of values: Changing perspectives on sustainable investing