Industry Investment Policy

A New Generation, a New Outlook on Investing.

ESG investments are finally shining through.

There have been mutual funds and ETFs that focused on companies that score well on various environmental, social and governance metrics but they have often lagged the broader market. Riding on other political and business issues, unrelated to their ESG goal.

That’s no longer the case. ESG funds are on the rise as investors are awakening to the realization that companies must play their part — particularly during the Black Lives Matter movement.

For example, the iShares ESG MSCI USA (ESGU), Vanguard ESG US Stock (ESGV) and FlexShares STOXX US ESG impact (ESG) ETFs are all up about 10% over this past year, outperforming the Dow and S&P 500 over the same time frame.

According to research from mutual fund tracker EPFR, funds with socially responsible or ESG mandates attracted more new money last week for the 11th time in the past 12 weeks. EPFR went on to say that so far this year, ESG funds have brought in $61.6 billion in new money.

Making money & doing good, not completely independent

“”One of the reasons you are seeing investors embrace ESG is that this no longer about just avoiding companies that are doing bad things and controversial sectors. There has been a change in consumer preferences. Millennials are willing to pay more for a product based on how ingredients are sourced, how companies treat their employees and how energy efficient they are,” Blake Pontius, director of sustainable investing and portfolio specialist for William Blair’s global equity team, said in an interview with CNN Business.

He added “It’s smart business practice to be more inclusive. With gender and ethnic diversity on a company’s board and management team often leads to better stock performance over time. – Social themes were already becoming more important and relevant to investors, and that’s been accelerated and thrust into the spotlight with concerns about injustice.”

“Environment, social and governance are themes that are secular, driven in part by younger generations and are likely to come even more to the fore as a crisis typically brings great changes with it,” said Sebastien Galy, senior macro strategist with Nordea Asset Management, in a report last week. “The status quo is no longer accepted.”

Hop on the ESG Bandwagon

Bond investors are hopping on board the ESG bandwagon as well. S&P Global Ratings said Monday that it expects so-called “social bonds” to be the fastest-growing segment of the sustainable debt market in 2020.

Issuance in this category, which includes bonds for projects to help improve food security and increase access to education and health care, has more than quadrupled to nearly $50 billion so far this year, according to S&P.

“Recent growth in social bond issuance indicates that the COVID-19 pandemic has not turned issuers’ or investors’ attention away from sustainable finance — rather, interest seems to be growing,” S&P said in the report. S&P sustainable finance analyst Lori Shapiro added that big banks and other large corporations are likely to be even more active in the social bond market as the year progresses.