ESG – Feature
On this last point, BNP Paribas is part of the Voluntary Carbon Markets Taskforce focussing on offsets in carbon markets. “It is bringing more detail and credibility to the tools and the sys- tem to help support the pathway to net zero,” Ambachtsheer says.
This rise in credibility means that assets need to be chosen carefully. “Asset managers are launching ESG funds left, right and centre,” Ramscar says. “It is not just about new fund launches, it is about providing diagnostic, climate risk and reporting capability to investors. “It will be huge,” she adds. “We will see asset managers develop tooling to supporting their clients. The industry is becoming more advanced in this space.”
A good year
ESG outperformance was one of the big stories last year. This has, according to Varco, moved the discussion from how much ESG costs to how much will it cost not to do it. A Morningstar study shows that ESG funds outperformed their traditional peers over one, three and five years. This was largely thanks to 2020, a year where carbon-intensive indus- tries, such as airlines, were hit hard by the pandemic, while years of investment in renewable sources of power saw the S&P Global Clean Energy index double. “The degree to which 2020 accelerated everything we have been talking about for a decade has been surprising,” Varco says.
It appears that last year was a turning point for proving the cre- dentials of ESG funds. “2020 was the year ESG funds were tested, and demonstrably so,” Ramscar says. “From active and passive perspectives, they came through it and the experience of 2020 has made people think more about how they are posi- tioned for the climate emergency.” Matthieu Guignard, Amundi’s global head of product develop- ment and capital markets for ETF indexing and smart beta, says that 2020 was a strong year for passive ESG strategies. “ESG was a strong trend in the ETF market in 2020 as inves- tors were risk-off,” he adds. “By June, 100% of flows were into ESG as investors switched from vanilla approaches.” Indeed, of the €42bn (£37.5bn) of net new assets that the Euro- pean ETF market witnessed in the whole of 2020, about €26bn (£23.2bn) flowed into ESG, so around 60%. “There was a strong trend for ESG with record figures in 2020,” Guignard says.
Last year, the ‘better’ ESG stocks performed strongly. “Inves- tors are reinforcing their ESG investment because they believe they can get outperformance,” he says. Guignard also points to risk reduction and regulation as other drivers of flows into various ESG strategies. “These are the three reasons why we may witness a strong ESG trend again this year,” he says.
40 | portfolio institutional December–January 2021 | issue 99
But Zandbergen-Albers warns that if economies recover, sus- tainable funds could be in for a bumpy ride. “If we see a sus- tained recovery due to vaccines or the economy returning to normal, we could see some volatility around sustainable funds because they are less invested in the cyclical parts of the economy.
“It is a base case scenario in what we expect for next year, but long term we are convinced sustainable companies will per- form well,” she adds.
All creatures great and small
Discussions on sustainability will widen this year to include biodiversity, Mennie believes. “Covid-19 is a zoonotic disease,” he says. “A UN report says that about 60% of human infec- tions are estimated to have an animal origin and that some 75% of all new and emerging human infectious diseases ‘jump species’ from animals to people. That should emphasize the importance of biodiversity, a focus on nature and how we han- dle food products in 2021.” Manuel also sees this issue becoming more important. “Biodi- versity and species loss are moving up the agenda and will come to more prominence in 2021.” Action is already being taken with a working group looking into establishing a taskforce to push for nature-related finan- cial disclosures. “There is scope for sustainability to have an extra boost by focusing on biodiversity,” Mennie says. Biodiversity will become mainstream for investors this year due to the crisis the world is facing, says Jane Ambachtsheer. “A million species face extinction, many within decades.
The events of 2020 will have an impact on ESG in 2021.
Masja Zandbergen-Albers, Robeco
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