Page 19 - BNE_magazine_07_2020

bne Julnye22002200 Companies & Markets I 19
bne:Funds
Global pandemic is boon for ESG funds, outperforming their brown peers
Ben Aris in Berlin
The coronavirus (COVID-19) pandemic has been a boon for environmental, social and governance (ESG) funds, 85% of which are now outperforming their non-ESG peers, according to a paper released by the Institute of International Finance (IIF) on June 18.
As bne IntelliNews reported, companies can be punished for not paying attention to their ESG obligations, but until recently those companies that invested heavily in improving their environment and social scores in particular were not rewarded with a premium to their share price either.
In Russia the most obvious example is Norilsk Nickel.
The Norwegian state pension fund banned its funds from investing in Russia’s metallurgical powerhouse, and one of the most popular stocks on the Russian exchange, because of its terrible pollution record. According to some reports, up to a third of its shareholders had to divest from the name, despite the strong company financials and the generous dividends the company pays.
The management responded by pouring $2bn into cleaning up its emissions and reducing its sulphur dioxide emissions
ESG-focused stocks outperform their peers
in particular, one of the Paris Accord prescribed gases. The company plans to spend another $3bn on continuing its clean- up and has already closed down some plants on the basis of their large emissions of pollutants. However, the Norwegian ban has not been lifted and the stock has not benefited. The management complains that investing in ESG compliance only adds to its costs and does nothing for its profitability.
That may have changed as a result of the coronacrisis.
“Sustainable strategies pay off: with the COVID-19 pandemic serving as a real-life “stress test” for ESG investing strategies, the relative performance of sustainable assets has been remarkable this year,” Emre Tiftik, director of Sustainability Research at IIF, said in a paper co-authored with members of the IIF sustainability team.
“In our sample of 41 sustainable equity indices, over 75% of sustainable indices have outperformed non-ESG peers year to date, by a substantial 8 percentage points for the median fund. The resilience of ESG equity indices was even more striking during the sharp COVID-19 sell-off in risk assets in Q1 2020: 85% outperformed their broad market counterparts. While
ESG-focused bonds have also delivered better returns
Source: Bloomberg, IIF, a set of 41 ESG equity indicies
Source: Bloomberg, IIF, a set of 10 ESG fixed-income indicies
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