ESG – Funds


from Robeco’s credit strategies have been attributed to using Sustainable Development Goal screenings when picking stocks. “We do not have a non-sustainable version of our global equity strategy to compare to, as our strategy fully integrates sustain- ability inside. Performance year to date is +2%, while the mar- ket was down around 7%,” he adds. “That tells us that sustain- ability is delivering, it is driving returns.


“In emerging market equities our sustainable version is doing about 4% better than the standard versions in the year to date,” Walsh says. “Across credit, global and emerging market equi- ties, there seems to be a consistent outperformance of the sus- tainable versions of our strategies.” A look at the performance of such funds and their inflows dur- ing the pandemic could be taken as a sign that attitudes are changing.


“The question of does ESG and sustainable investing lose you money is largely, even in the US, no longer being asked. The past five years have shown that funds labelled ESG or sustain- able have done pretty well,” says Andrew Parry, head of sus- tainable investment at Newton Investment Management. “The question is changing from why should you consider ESG to why wouldn’t you,” he adds.


Another asset manager hopes that the performance in the first half of the year will continue to change opinion about ESG investing.


“There is a perception, which is probably wrong, that sustaina- bility costs performance. It doesn’t and if it doesn’t, then you should do it,” Walsh says.


The question of does ESG and sustainable investing lose you money is largely, even in the US, no longer being asked.


Andrew Parry, Newton Investment Management Universal appeal


Interest in ESG strategies is as strong in Europe and the UK to- day as it has always been, MacArthur says. Yet he has witnessed a new trend in the past two months of US investors taking an interest. Newton has a US sustainable strategy managed in London that is seeing client interest in America. “That has been our biggest area of inflows,” Parry says.


Issue 94 | July 2020 | portfolio institutional | 31


Low on oil “Sustainable strategies historically have tended to be more re- silient,” MacArthur says. “They protect on the downside. “In terms of magnitude, the pandemic is the most significant test of ESG since the credit crisis,” MacArthur says. Yet could part of the reason for sustainable funds withstanding this test be down to weak energy stocks? The price of oil did fall into negative territory for the first time in the first quarter and ESG funds are unlikely to have a meaningful exposure to oil and gas companies as traditional equity funds and FTSE100 trackers would. Fred Isleib, director USA, ESG research and integration at Manulife Investment Management, says that the market has seen a sharp recovery and sustainable funds in an upcycle like this tend to underperform while lower quality names may out- perform, but believes that this could be short term. “It will be interesting to see at the end of the year, through this pandem- ic, how these sustainable funds perform.” The early signs are good, believes Aon’s MacArthur. “Sustaina- ble strategies also kept up with the recovery since early April,” he adds. “It has been an encouraging period, year to date.” Parry believes that the strong performance recently is down to stock picking and not excluding oil and gas entirely, as the strategy has a minor exposure to carbon emitters. “The ones we do own are in transition and are working to get rid of coal from their operations, but it has been advantageous for us not to hold the big oil and gas companies. “We see sustainable considerations as a tool for effective stock picking,” he adds. “It has been additive and has come through its test quite well.” But sustainable strategies are not completely immune to mar- ket conditions as they do have an Achilles heel. “If we see a ral- ly in cyclical stocks towards the end of the year or a upward re- pricing of interest rate expectations, such funds could be vulnerable, but the shape of the market environment year to date it has been constructive for these strategies,” MacArthur says.


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