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Strong Resilience of ESG Funds during the COVID crisis
What role did ESG criteria play in the market crisis context of the first half of 2020?
In the course of the 2020 COVID pandemic, investment funds were exposed to unprecedented market conditions. In this study, Sia Partners aims at analysing and demonstrating the resilience of ESG funds managed by French asset managers in a high volatility context.
Using a fund selection methodology based on the Morningstar Sustainability Rating, and after analysing more than 500 funds over the first half of 2020, encouraging assessments were revealed for top-rated equity funds.
Better Inflows
Top-rated equity funds benefited from stronger inflows than their peers, regardless of the investment zone (France, Europe, World) and the performance achieved. In H1 they had inflows equivalent to 2.5% of their aggregate assets under management at end of 2019, compared to outflows of 5.8% for lower-rated funds.
Better Performance During the European Market Crash
On average, the best rated European large cap funds outperformed their benchmark by 3.1% over the period under review, compared with -0.9% for the least virtuous in terms of ESG. This outperformance of funds invested in European equities was also achieved at comparable risk levels as shown by the analysis of the information ratio of these ESG funds (1.08 on average) which was significantly higher than the average of poorly ranked funds (0.13).
Lower Risks Overall
The volatility of European large-cap equity funds was on average lower in H1 for the most sustainable funds whereas in the past, there didn’t seem to be strong differences.
ESG Investment: A Mandatory Proposition for the Industry and Which Requires Adaptation Efforts from Asset Managers
The period of severe market turbulence marked by significant market volatility has clearly highlighted the ability of ESG funds to demonstrate resilience and appears to be a successful test case for sustainable investment, which was already in high demand before 2020. In this respect, asset management integrating ESG criteria appears to be an undeniable opportunity for asset managers to remain competitive while ensuring a certain resilience in the event of a crisis.
While this trend is clearly positive for the industry, implementing the right strategy, operating model, procedures and data sources to become a credible ESG fund provider will become a key competitive edge in the future.