As all of us are aware, 2020 has been an unusual and tumultuous year for investors. Markets fell sharply in March, due to the economic effects of Covid-19, which we’re now all too familiar with. On a more positive note, there has been some recovery, however prices have remained fairly volatile.
Despite this, certain funds have performed better than others during the pandemic. For example, many of these funds are those that take environmental, social and governance (ESG) factors into consideration.
What is ESG investing?
ESG investing is also known as “responsible” investing, and involves assessing a company’s policies and how they may affect their future share price. The selection is performed on a company-by-company basis, meaning two companies operating in the same sector could be considered differently depending on their environmental policies – or whether they have one at all.
This takes into account how these policies could impact a company’s future share price. For example, not having a policy that conforms with the changing shift to reduced emissions could have an impact on how a business’s logistics performs in the future.
This is not to be confused with strictly “ethical” investing, which tends to avoid certain sectors entirely. For example, companies operating in the non-renewable energy sector.
How have ESG funds performed recently?
Generally, ESG funds have ridden the waves of the recent market turbulence fairly well.
According to Morningstar, 70% of ESG funds in the first quarter of 2020 were ranked in the top two quartiles, and just 11% of ESG funds were in their category’s fourth quartile.
This indicates that ESG funds have recently performed better than those that do not take ESG factors into account. Positive news for those looking to use their investments to make positive changes in the world.
It is important to note, however, that these figures cover a short timeframe, and that there is no guarantee that ESG funds will continue to outperform at this rate, or at all in the future.
Why is this the case?
There are many reasons why ESG funds have experienced a more positive outcome recently, in comparison to other funds.
One reason could be due to environmental factors, for example, plummeting oil prices and the increased focus on carbon emissions. As ESG funds also assess a company’s policies on social and employee wellbeing, the Covid-19 crisis may have brought these to light.
With more people thinking about the long-term impact of their investments, ESG is rising in popularity.
KLO Financial Services
If you’d like to find out more about how your investments could make the world a better place, it’s important to seek expert advice. Talk to a financial adviser today at KLO Financial Services by calling 01926 492406 or emailing email@example.com.