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Responsible Investing and the COVID19 recovery

If there is one silver lining to the COVID19 crisis, it is that responsible investing is weathering the markets fluctuations well and performing strongly.



ESG out-performance


Responsible investing – a term describing the integration of non-financial dimensions in investment decision making such as environmental, social and governance (ESG) performance as well as ethical and impact considerations – is currently booming. As reported annually by the Responsible Investment Association Australasia[1], in 2020 Australian assets under management managed under Responsible investment approaches have grown steadily to reach $1 trillion (or 44% of total AUD2.2 trillion AuM).


Institutional investors are naturally focused on the mitigation of risks for enhanced returns delivering long-term value creation. Numerous studies have demonstrated that the companies with commitments on ESG dimensions were more likely to deliver above average financial results and be more resilient to shocks and crisis[2].


Crisis resilience


During the COVID19 market meltdown, Responsible investing in Australia and overseas has delivered consistent outperformance against traditional benchmarks over short-term and long-term timeframes[3]. A recent academic study published by the US National Bureau of Economic Research authored by Pastor & Vorsatz[4] found that investors have retained their commitment to sustainability during the COVID-19 crisis suggesting responsible investment is viewed as a necessity rather than a luxury good.


Last month, global accountancy firm EY’s fifth global annual investor survey[5] of 298 institutional investors identified:


  • 98% of institutional investors conducted an evaluation of target companies’ nonfinancial disclosures, with findings frequently impacting investment decisions; and

  • 91% of investors said that non-financial performance played a pivotal role in their investment decision making in the past 12 months; and

  • Over 70% pledge to devote more time and attention to the physical and transition risks implications of climate change in the future decision making.


This enthusiasm for Responsible Investing and its out-performance is not just being observed in Australia, but also all over the world.


Responsible Investment - News this week


This week only, US-based State Street took a bold move against a proposed limiting rule by US regulator to support ESG investing and clarify the role of pension investors under fiduciary duty obligations.


In the UK, NEST, the country’s largest defined contribution scheme, announced its commitment to net zero carbon by 2050 by diverting investments from polluting to clean industries.


And finally, earlier this week, Alphabet Inc. (parent company of Google and other famous ventures) announced having issued USD5.75 billion in sustainability bonds to finance energy efficiency, clean energy, green buildings, clean transport, circular economy, affordable housing, racial equity and Covid19 recovery projects. This is the largest ever issuance of corporate debt to finance green projects, and it was massively oversubscribed according to Reuters.


Responsible investing is here to last and continue deliver performance and value. Each investor will have a different approach to responsible investing and use various strategies and methods to integrate ESG dimensions into their investment decision making processes.


Investors through these choices are regenerating the economy and enabling the transition towards a low-carbon future.

 
 
 

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