Covid-19 Drives Higher Demands for ESG Assets

Despite the crushing effect of the Covid-19 pandemic, and the U.S. Labor Department’s attempts at restricting the use of ESG investing to drive retirement plans, some level of sustained growth has been witnessed in the environmental, social, and governance-focused assets all over the world.

According to Morningstar, sustainable fund flows in the U.S. were constant at $10.4 billion in the second quarter of the year. Consequently, net inflows for the first half, amounted to $20.9 billion, instead of $21.4 billion as net inflows for all of 2019.

Covid-19 & ESG Demands

These figures suggest that the Covid-19 crisis stimulated asset owners to reflect on the purpose and significance impact of their investments.

CoreData Research conducted a study of 500 global institutional investors. The findings of the study revealed that 51% of the study participants currently integrate ESG into their investment methods.

This is an improvement on the number (36%) at the end of 2019. According to the study, in the second half of 2019, 29% of these investors used impact investing to realize their specific ESG goals as against 18% at the end of the same year.

Organizations in North America prove to be less trusting as the fourth quarter showed a decrease in the institutions (from 38% to 35%) that paid attention at a manager’s ESG record falling.

This trend suggests the increased need for improved COVID-19 ESG reporting and better benchmarking data that allows investors to get a clearer view of the rewards and risks that come with sustainable investments. This is because investors are most likely to refer to issues bordering on transparency and performance.

Despite these trends, the interest among individuals stays high going by the findings of a survey by Voya Financial. It was found that 76% of individuals in the survey thought that their employers must apply ESG principles to workplace benefits. 60% of the survey’s correspondents were more likely to contribute more to an ESG-aligned retirement plan where and when available.

However, the DOL has recommended a stipulation that would prevent retirement plans from effecting investments based on ESG considerations. The rationale for this decision is that ESG investments are informed by political goals.

The proposed stipulation has attracted advocates of sustainable investment and the fund industry. They believe that the rule should be withdrawn or significantly altered. Their position is based on the view that poor ESG rankings may cause different types of impacts and risks: short, medium or long-term.

To the proponents of sustainable investment, the DOL’s rule will increase uncertainty and legal risks while preventing U.S. pension plans from accessing the best options that offer long-term value. The standardization of ESG metrics and terminology and, the delimitation of ESG factor which are relevant to organizations financial results.

A current U.S. Government Accountability Office survey shows that a lot of the present disclosures are unsatisfactory.

According to The Center for Audit Quality (CAQ), company disclosures that offer trust and confidence are vital to the health of any economy. Independent assessments of this information can be implemented to ensure that this reliability is maintained.

For now, a fund industry trade group known as the Investment Company Institute wants members to describe ESG’s integration into a fund’s investment process and other investment strategies using terminology that allows the public to appreciate ESG investing better.

The UBS Financial Services has it that a majority of sustainable funds (56%) outclassed their competition in the second quarter with 72%of sustainable funds being ranked in the upper half of their Morningstarclassifications. In a fresh US SIF note that ESG index funds are a specific forte where net flows outpace those into keenly managed sustainable funds.

State Street just recently launched the ESG version of its much-touted SPDR S&P 500exchange-traded fund (ticker: SPY), the SPDRS&P 500 ESGETF (EFIV). This is because ESG investing is headed towards a key stage in its trajectory where joint calls for transformations are becoming difficult to ignore.

Consequently, more investors are progressively using their investment choices to affect their ideas of transformation in the fund industry.

Although Covid-19 ESG has stunted growth in many industries in the modern business landscape. Interestingly, this has not been the case for ESG assets.