ESG investing: a beacon of hope in turbulent times

Dermot Hamill, Head of Wealth Management at Canaccord Genuity Wealth Management discusses ESG Investing and the positive innovation that has taken place in this space throughout the pandemic.

As nations around the world grappled with the COVID-19 pandemic over the past 18 months, investors have endured turbulent markets alongside the spectre of increasing inflation. But in the world of investing it isn’t all doom and gloom and ESG (environmental, social, governance) has emerged as a beacon of hope and future prosperity. What are our reasons to be confident about ESG investing this year and beyond?

ESG has passed the COVID-19 stress test

Around 40% of ESG funds were top quartile in 2020 - they performed much better than their non-ESG peers, and that was rewarded with over US$120 billion inflows into ESG equity strategies. For comparison, there were US$125 billion of outflows from non-ESG equity strategies. Also, a third of all inflows into exchange traded funds (ETFs) were into ESG ETFs. These inflows show us that ESG is winning. 

The ‘S’ in ESG climbed into the front seat with the ‘E’

There is no doubt that the last 18 months brought more widespread focus on our health and education. As hospitals filled and schools shut their doors, combined with the proliferation of social media and personal experiences, investors understood that companies that help us eat better food, provide sound educational tools, and offer medical care to more people are going to be very important economic actors. 

Environmental and social issues have moved to the forefront

The environmental damage we had been wreaking on the planet became starkly clear in the pandemic, as cars remained on driveways and planes were grounded on runways. Governments also spent monstrous sums on disposable PPE. –Socially - lower income groups were disproportionately affected by the virus and school closures widened the educational gap between children from different socio-economic backgrounds. The pandemic brought disparities in our societies and problems with our environment into plain view. And people want these problems solved.

We made big strides in getting out of the acronym swamp

Undoubtedly, jargon that surrounds ESG held us back and prevented a lot of investors making a shift into this style of investing. It has given the industry the misconception of being a ‘trend’ or a ‘passing fad’. Many also wrongly believed that ESG was purely about excluding ‘sin’ stocks, but Investors now understand that ESG is about investing in companies that make the world better - or don’t make it worse.

People are now much more switched on to the drivers of sustainability and the economic impacts they have. It’s not about debating the rights or wrongs of specific companies anymore. It is about consumer preferences (electric vehicles, for example), employee values (people want to work for companies where they are properly looked after), corporate supply chains (companies want to work with ethical providers) and investor sentiment.

Many ESG champions are involved in exciting new areas and offering solutions to the problems we face. Thanks to breakthroughs in DNA sequencing and artificial intelligence, for example, researchers sequenced the COVID-19 virus in just two days. As a result, we had the first vaccine against COVID-19 within nine months.

The last 18 months have been far from easy. But it doesn’t mean we can’t be excited about the innovation that happened during the pandemic, and the growing focus on ESG issues worldwide. We expect to see interest in ESG investing, continue to grow. The opportunity to invest in funds that work towards making the world a better place, while aiming to generate positive returns, will become increasingly attractive to clients.

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Note from Canaccord: Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

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