Life is being on the wire, everything else is just waiting. — Karl Wallenda

Crises often trigger irrational behaviors from investors shifting their focus towards short-term goals that don’t always coincide with their long-term plans. The economic uncertainties reinforce risk aversion setting off the flight-to-safety phenomenon. This pandemic is no exception. The volatility in the global financial market left investors scrambling for higher quality and less risky assets. Irrational as these behaviors may be, crises reshape the future of investment. This holds true for ESG investing. The primary driver of doing ESG is risk mitigation and COVID-19 pushed environmental and societal issues higher up the risk spectrum. Parallels have been drawn between risks of a pandemic and issues such as biodiversity and climate change. The pandemic crisis expands the conversations around ESG and reinforces its importance.

ESG Investing involves incorporating ESG metrics into the investment analysis and including ESG factors as investment considerations. Environmental go beyond climate change and encompasses the holistic approach of conservation, including biodiversity, resource efficiency, and waste management. Social refers to people and relationship consideration while governance metrics set standards for running a company. ESG Investing is not an entirely new concept and has been around for at least twenty years. The last decade saw this once slow-moving train pick up more pace. ESG evolution is dynamic, and the significant advancements in the later years extended across asset classes.

Figure 2. Sustainable and Responsible Investing in the United States (1995-2018)

ESG trends show COVID-19 not only increased awareness but more importantly, boosted demand for ESG products. A survey conducted by the Investment Management Association of Singapore (IMAS) in June showed almost 70% of the respondents believed the pandemic will accelerate the adoption of ESG investments as ESG market becomes more relevant during the COVID-19 period. The pandemic also gave sustainable investments an opportunity to demonstrate their capacity to create value. ESG investments fared better than their counterparts during the abrupt market drop brought about by the pandemic. Most MSCI ESG Leaders indices globally have outperformed the mainstream market. A study by investment manager Fidelity International on more than 2,600 companies revealed positive correlations between ESG ratings and market performances. 44% of KPMG survey respondents cite the opportunity to generate alpha from ESG strategies as their overriding factor. Global investment management firm, Allianz Global Investors saw a vast majority of its sustainable strategies outperforming broad market benchmarks in the first quarter of this year.

READ ALSO  Etsy Is Still Fairly Valued, Don't Miss This Opportunity (NASDAQ:ETSY)

Investors should start getting their head into the ESG game. The IMAS 2020 Annual Survey ranked ESG as the leading future driver of investment growth in the next three years. ESG has gone from nice-to-have to a must-have, says Anthony Cowell, KPMG’s head of asset management in the Cayman Islands. 74% of global investors plan to increase ESG ETF allocation according to the 2020 Global ETF Investor Survey conducted by a U.S. private bank, Brown Brothers Harriman (BBH). On the hedge fund front, a survey conducted by KPMG showed that 84% of hedge fund managers reported increased interest in ESG over the last 12 months.

The largest ESG ETF is JPMorgan BetaBuilders ETF (BBEU) with $5.24 billion assets under management. Some of the top-performing ESG ETFs in the last trailing year are iShares MSCI Denmark ETF (EDEN), iShares MSCI Europe Financials ETF (EUFN), First Trust Global Wind Energy ETF (FAN), iShares MSCI Sweden ETF (EWD), and iShares MSCI Global Impact ETF (SDG).

*Like this article? Don’t forget to hit the “Follow” button above!

Subscribers told of melt-up March 31. Now what? 

Sometimes, you might not realize your biggest portfolio risks until it’s too late.

That’s why it’s important to pay attention to the right market data, analysis, and insights on a daily basis. Being a passive investor puts you at unnecessary risk. When you stay informed on key signals and indicators, you’ll take control of your financial future.

My award-winning market research gives you everything you need to know each day, so you can be ready to act when it matters most.

READ ALSO  U.S. court voids $448 million award against AbbVie, but revives FTC claim over AndroGel

Click here to gain access and try the Lead-Lag Report FREE for 14 days.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.