In the fastest and deepest correction we’ve ever seen, ESG strategies have held up relatively well. A webinar organised between Natixis Investment Managers and its affiliate asset managers Thematics AM and Mirova, the reasons behind this were discussed.
The panel members agreed that this crisis has been a test for sustainable investments. The globalisation of the economy has allowed Covid-19 to spread fast. According to Anne-Laurence Roucher of Mirova, this crisis has proven ESG is about much more than just financial and environmental criteria. ‘We also need to think about our model of society,’ she says. ‘After all, the higher-income classes can work from home, which makes them less vulnerable to this crisis while lower-income people don’t have this luxury.’
An easy explanation for the outperformance of ESG strategies during the crisis is their natural overweights to quality companies in sectors such as healthcare and IT and underweights to hard-hit sectors such energy companies. These business models of the former are more resilient to a crisis.
‘We have performed better thanks to our sector allocation, but in our equity section an overweight to quality/growth and good thematic choices have also contributed to performance,’ says Roucher, adding: ‘Exposure to sustainable themes such as IT, healthcare, renewable energy, sustainable agriculture and the circular economy certainly helped.’
Paradigm shift
Arnaud Bishop of Thematics AM mentioned the merits of active management: ‘We are certainly pleased that we are active managers and can act on the basis of information flows. This crisis has shown you can no longer ignore ESG,’ he says. ‘Everyone is now working on integrating not only financial but also extra-financial criteria. The management of companies now has the opportunity to demonstrate that they apply good governance. In my opinion, the ‘S’ of ESG will also come more to the fore. In the long term, I remain convinced that sustainable investments will continue to outperform.’
Roucher remains convinced of opportunities such as the circular economy, energy efficiency, healthcare and IT. ‘I think we are in the midst of a paradigm shift, and that our society is changing. But it’s a slow process, because sustainable investments today only account for 2.5% of all assets.’
An issue that could possibly halt the advance of ESG, however, is the low oil price. After all, this makes ‘dirty’ investments cheaper. Could this, therefore, jeopardise the advance of renewable energy? Roucher believes it doesn’t. ‘Renewable energy will not suffer from the falling oil price. Energy efficiency will remain a theme that will not be changed by low oil prices. Governments will also continue to support renewable energy.’