In a recent article, we broke down what ESG investing is. It got you excited right? Well us too. But it raised some interesting questions, most notably, why since the start of the COVID-19 crisis, interest in ethical investing has increased. So we thought we’d delve a little deeper.
If you missed our What is... ESG Investing article, you can find it here.
Did the global lockdown awaken our social consciousness; make us more aware of the plight of the planet and of those suffering human rights violations?
We’d all like to think so I’m sure, but it is probably more to do with the companies featured in ESG funds. ESG funds tend to focus more on innovative technology companies, rejecting polluting companies like airlines and oil companies which have plummeted during the crisis. This sector bias has boosted ESG funds since March 2020.
ESG funds exclude companies with poor records on pollution, labor relations or management practices for example. We’ve mentioned tech companies being a big feature of ESG funds, but they also include pharmaceutical companies, sustainable energy companies, plastics conscious supermarkets or toiletries companies, to name but a few.
There is some evidence to support the socially conscious theory however. Global and local lockdowns have made us all realise we are part of something bigger; that we must care for not just ourselves, but both our neighbours and the planet. Gone are the days of pushing past people on escalators to get on that next tube (firstly because there are fewer people to push past thanks to everyone working from home, and secondly because you’d be breaking the 1 - 2m rule). But that feeling of helping others can translate into our investment preferences, and it has been.
According to a recent JP Morgan insights piece, “using the broadest classification for the ESG market … assets following global sustainable investment approaches could reach around $45 trillion AUM by the end of 2020”. Now that’s no small locally-sourced, organic fries.
The move towards ESG investing is both economic and societal. Some people have seen COVID-19 as the first real test for companies who fit the ESG banner - it has made the way companies treat their employees transparent, really for the first time. Redundancies, furlough schemes, working from home and the transition back into the workplace. Have companies been focussed on the health and welfare of their employees, or only of the bottom line?
Game changers like the Black Lives Matter movement, climate protests and four million acre fires year on year are changing perspectives - younger investors who have grown up with financial insecurities from the 2008 crash, but also grown up in a digital world are putting the spotlight on inequalities and demanding change - one of these changes is the way we invest.
This societal shift is putting pressure on companies and funds to realign their priorities. Even the Financial Conduct Authority and other regulators are getting onboard - last year the CFA Institute launched its first ESG investing qualification.
So, what is Upside doing? Well, the Upside ecosystem encourages every analyst to input all the research they have on an investment idea before it is sold within the Upside Marketplace. Investment ideas available for sale, can be filtered based on an area of interest by the investor - including by an ESG tag. This allows ESG conscious investors to not only filter out non-ESG ideas, but also delve into the research to see if the idea fits their underlying values.
There’s an Upside to socially conscious investing, and a science to being right.