BlackRock is all in with ESG and sustainable investing, with CEO Larry Fink’s relative success in convincing investors of its efficacy and activists of his intentions still undetermined.
Fink’s annual letter in January was a clarion call for ESG action, in which the company said it will exit certain fossil fuel investments, employ new sustainability screens and “punish” corporate managers for failing to fully disclose their climate change exposure.
And now, BlackRock is out with a new report that examines sustainable investing’s performance during market events like the current pandemic.
Unsurprisingly, the asset management giant gave the strategy’s resiliency rave reviews.
SEE THE FULL REPORT HERE
Calling the recent downturn a key test of its ESG conviction, BlackRock said that, “In the first quarter of 2020, we have observed better risk-adjusted performance across sustainable products globally, with 94% of a globally-representative selection of widely-analyzed sustainable indices outperforming their parent benchmarks.”
While conceding the short time period, it nonetheless “aligns with the resilience we have seen in sustainable strategies during prior downturns” and the results are consistent with research BlackRock has been publishing since mid-2018, “demonstrating that sustainable strategies do not require a return tradeoff and have important resilient properties.”
But why?
What explains the resilience, BlackRock rhetorically asks?
“A correlation between sustainability and traditional factors such as quality and low volatility, which themselves indicate resilience.”
Other findings include:
- A range of material sustainability characteristics, including job satisfaction of employees, the strength of customer relations, or the effectiveness of the company’s board.
- Investor preference for sustainable assets during the crisis. As investors have sought to rebalance their portfolios during market turmoil, they are increasingly preferring sustainable funds over more traditional ones. In the first quarter of 2020, global sustainable open-ended funds (mutual funds and ETFs) brought in $D40.5 billion in new assets, a 41% increase year-over-year. U.S. sustainable funds attracted a record $7.3 billion for the quarter.
“We believe these inflows during a period of extraordinary market drawdown suggests a persistence in investor preferences toward sustainability,” the company concluded. “They upend an oft-cited concern pre-COVID crisis that during sharp market downturns, investors will de-prioritize sustainability.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
