DeVere Group’s Nigel Green believes that over the next 12 months, COVID-19 will drive a “skyward surge” in investments that have a social impact.
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“ESG investing was already going to reshape the investment landscape in this new decade—but the coronavirus will quicken the pace of this reshaping,” the financial advisory firm’s CEO said in a statement.
He noted that prior to the pandemic, ESG-based funds tended to outperform other investments, with lower long-term volatility.
Sustainable funds outperformed conventional funds in 2019, Morningstar found, with 35% finishing in the top quartile and 66% in the top half.
“Since the COVID-19 public health emergency upended the world, the latest broad analysis shows that ESG funds have typically continued to outperform others,” Green said.
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More profoundly, though, the pandemic has shown investors that individual actions don’t happen in isolation.
“The coronavirus pandemic has underscored the vulnerability and fragility of societies and the planet. It has underscored that increasingly, companies will only survive and thrive if they operate with a nod from the wider court of public approval. It has underscored the complexity and interconnectedness of our world in terms of demand and supply, in trade and commerce—and how these can be under threat if not sustainable,” he said.
After a recordbreaking 2018, flows into sustainable funds quadrupled to over $21 billion in 2019, according to Morningstar. The number of conventional funds that consider ESG factors jumped from 81 in 2018 to 564 last year.
Finally, Millennials, now in their 30s and late 20s, have more power as investors, and are using it to drive an increase in socially responsible investing. These investors prioritize ESG missions when making investment decisions. In fact, deVere Group research conducted earlier this year found that 77% of Millennials cited ESG investing as their top priority.
“This is crucial because the biggest-ever generational transfer of wealth—likely to be around $30 trillion—from Baby Boomers to Millennials will take place in the next few years,” Green pointed out.
These younger investors aren’t completely disinterested in traditional investing criteria. Ten percent of those surveyed cited anticipated returns as their top priority in making investment decisions, and 7% considered a fund’s past performance. However, it’s clear that younger investors are inclined to see a fund’s performance and impact as not mutually exclusive.
“Investors are increasingly aware that it is possible—and increasingly necessary—to make a profit while positively and proactively protecting people and the planet,” Green said. “As such, they will be making investment decisions after measuring the sustainability and societal impact of a sector or company as these criteria help to better determine their future financial performance, or in other words their risk and return.”