How Will Covid-19 Impact ESG Investing Long-Term

By Kerstin Engler, Senior Wealth Manager, Geneva Management Group.

Sustainability is a trend on the rise in every sector of the business world. From consumers to corporates, there has been a global shift bringing environmental and social consciousness to the fore.

The investment world is no exception. In recent years, there has been a rise in investors looking to the future ‒ opting to choose their investments on the basis of social and environmental impact rather than exclusively financial gain.

This is not just about making money back on an investment, but about making a bigger impact on the planet and building communities by investing in businesses that implement measures to ensure ethical practice, sustainability and accountability.

Statistics indicate that investors continue to put their money into businesses with a strong focus on environmental, social, and governance investing (ESG), even at the start of the year as the Covid-19 pandemic was already unfolding.

According to investment research company Morningstar, investors around the world put a total of $45.6 billion into funds focused on ESG in the first quarter of 2020. This is not to say that this sector was immune to global investment outflows experienced in response to the outbreak of Covid-19.

After reaching an all-time high of $960 billion at the end of 2019, following three years of consistent growth, sustainable funds declined by 12% in the first quarter. Comparatively, investment funds overall declined by 18%.

But what does the future hold for this investment sector beyond Covid-19? The reality is that it is simply too soon to tell. We have no evidence so far that companies which apply ESG criteria will weather this storm better.

In fact, it’s too early to know what the overall impact on investing will look like long-term beyond Covid-19. Globally, we are still collectively figuring out the ‘new normal’ during this unprecedented crisis.

We have seen that investors are typically focusing on the short-term, dealing with their current investments and focusing on the survival of their companies or their bankable assets.

Our clients want to know how the pandemic will change the world from an investment perspective. We have discussions with clients about how the corporate landscape, and therefore investment opportunities, will be affected. There is a lot of consideration of the impact on sectors including biotech, robotics, gaming and the automotive industry. Consider, for example, that the latter will be affected by a significant reduction in the use of public transportation.

People aren’t asking about ESG. There hasn’t yet been time to look to the long-term. During this period of uncertainty, there have been ripples of talk around the world about how nature will ‘take back cities’ and conspiracy theories that ‘planet Earth is teaching us a lesson’.

Perhaps one good thing that will come out of this is that we will emerge with more consciousness and more purpose. The world will certainly be less global and more local after the crisis. Covid-19 has shown the limitations of globalisation, disruption in supply chains, and transportation, for example.

One of the potential advantages for companies that are already ESG classified is that they may already produce locally for environmental reasons, which could give an edge in this new world where we realise the fragility of global imports and the importance of supporting local business. Other companies may still need to adapt their supply chain.

We have already seen businesses launching new initiatives to help those in need during this time. Beyond Covid-19, it stands to reason that there will be heightened social awareness. More than ever, people are thinking about social factors and uplifting communities. Sustainability could well be in focus as the world collectively heals and looks to the long-term for the planet and its people.