In the ongoing market turbulence, funds with higher ESG ratings seem to be holding up better, says head of Responsible Investments at Nordea Asset Management Eric Pedersen.
"This is what we’ve noticed from rating agencies as well as from our internal data. Stocks and bonds with a good ESG ratings actually holding up better than many others," Pedersen says to AMWatch.
"Part of the explanation is, of course, that the oil price has dropped dramatically, which hurts, for instance, the energy equities that ESG funds tend to not hold. But it is still a relevant observation," Pedersen adds.
The evidence so far suggests that ESG has been more resilient, echoed Morgan Stanley’s equity analyst Jessica Alsford in FT Moral Money yesterday and noted that ESG funds have also withstood the market sell-off better than most others.
"Flows into ESG ETFs both on fixed income and equities have held up better again versus the market," Alsford said.
A pandemic was not seen as a risk
On the other hand, Pedersen notes rather ironically that a pandemic was not high on most people’s risk agenda until recently.
For instance, a pandemic was not listed among the most important risks for this year in the World Economic Forum’s (WEF) Global Risks Report. Every year, WEF asks over 750 global experts and decision makers to rank their biggest concerns for the year in terms of likelihood and impact.
Whilst pandemics have been named as one of the top risks in the WEF survey in earlier years, this year participants focused their concerns on issues related mainly to climate change and the environment.
Turbulence will highlight the importance of ESG
Going forward, the turbulence is likely to further highlight the importance of ESG in investments, Pedersen believes.
Pandemics can be seen as an ESG issue too, in that they cut across both the Social and Governance dimensions, he adds.
"The current storm will just underline the importance of ESG. The climate issue will not disappear for the next 50 years, the EU Sustainable Finance Initiative will not go away, and large Global asset managers like State Street and Blackrock will hopefully not suddenly turn away from the active ownership agenda they have just announced. None of this will slow down," Pedersen says.
This post originally appeared on AM Watch.
