June 19, 2020
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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.
Majority of ESG funds outperform wider market over the last decade
New data from Morningstar shows that the performance of a sample of 745 Europe-based sustainable funds has fared better than non-ESG funds over the course of one, three, five and ten years. Close to six out of 10 sustainable funds delivered higher returns than equivalent conventional funds over the past decade, according to the study. Hortense Bioy, director of passive strategies and sustainability research at Morningstar, said: “The findings debunk the myth that there is a performance penalty associated with ESG investing”. (From the Financial Times, 13 June 2020)
UK charities demand a green Covid-19 recovery
Chiefs from some of the UK’s leading charities have written to Boris Johnson to demand a green recovery from the pandemic, including using bailout packages to build low-carbon infrastructure and creating long-term green jobs. The charities further demand that bailout packages be subject to strict conditions, including companies receiving economic aid being required to meet low-carbon targets. (From The Guardian, 15 June 2020)
Equity investors face daunting challenge in pricing climate risk
In a report published earlier this month, the International Monetary Fund (IMF) warned that equity prices do not currently reflect the physical risks climate change poses to assets. This includes sudden changes in investors’ perceptions which could result in a drop in asset values, causing a knock-on effect on investor portfolios and financial institutions’ balance sheets. According to head of UK equities at Mirabaud Asset Management David Kneale, addressing this will be “daunting” for investors, as it requires complex modelling. (From Investment Week, 15 June 2020)
Experts predict pandemic to strengthen companies’ commitment to ESG
Experts are predicting the pandemic will strengthen companies’ commitment to improving their ESG standards. Some are suggesting that because this recession is led by health instead of financial risks, the likelihood of businesses having to prioritise efforts to mitigate physical dangers to employees is higher than the 2008 financial crisis. This may bring issues such as climate change into sharper focus in businesses’ resiliency planning processes. Higher levels of environmental awareness have also led to a better appreciation of the benefits of ESG. This may result in even further investor scrutiny of companies’ measures to improve their ESG standards. (From Money Marketing, 15 June 2020).
Is ESG ready to take centre stage in portfolios?
According to a recent study by Deloitte Insights, ESG-mandated retail and institutional accounts in the US grew at a compounded annual growth rate of 16% from 2014 to 2018. In addition, UBS Global Wealth Management has recently published a report titled ‘Sustainable investing after Covid-19′, and its head of sustainable and impact investing Andrew Lee comments that “Covid-19 actually accelerated investor focus on sustainable investing […] issues that were considered luxuries in the past have become critical business continuity mechanisms in the pandemic lock down”. (From Forbes, 15 June 2020)