ESG after COVID-19

ESG awareness has been growing slowly in the past decade, however in the past couple of years there has been a significant shift in the uptake of ESG investing, talks about the ESG philosophies and companies’ fiduciary duty to adopt ESG principles.

There is still much more to be done and achieved, but today there is already a wider focus on ESG, adjustment of strategies that consider its performance alongside traditional financial metrics and the need for the investors to reconsider their role into the world-changing environment.

It is certain that the trend is already underway, the COVID-19 crisis that had such a strong effect worldwide actually pushed the interest and need of ESG further down the substantial way. Investors are also calling COVID-19 the 21st century’s first “sustainability” crisis and one that has renewed the focus on climate change, acting as a strong push for decision makers to prioritise a more sustainable approach to investment.

As a result of the radical impact COVID-19 has had on global economies in such a short space of time, many policymakers and investors are viewing the crisis as a wake-up call that accelerates the need for a different approach to investing, as parallels have been drawn between the unforeseen risks of a pandemic and issues such as climate change.

There is already a visible change in the market:

- According to Morningstar in the first half a year net inflow into ESG funds in the US reached $21 billion, nearly reaching the total amount for the entirety of last year.

- J.P. Morgan polled investors from 50 global institutions, representing a total of $12.9 trillion in assets under management on how they expected COVID-19 would impact the future of ESG investing. 71% responded with positive expectation that a low probability / high impact risk, such as COVID-19, would increase awareness and actions globally to tackle high impact / high probability risks such as those related to climate change and biodiversity losses.

The pandemic has served as the first real proof-point for sustainability, underlining the fact that ESG investing doesn’t come at a cost, but on the contrary more than that can future-proof investments and boost returns, all while helping to shape a better future. In the face of this crisis, the facts are now proving the resilience of sustainable investing.

It is unfortunate that in order to have a wake-up call and to take ESG issues and its value more seriously world had to go through the pandemic and see an actual environmental risk. The effects of it shows that there are limits on the forecasting models which do not yet consider complex systematic risks.