Having it all: the long-term Turtle and the short-term Hare

Why choose when you can have both!

Financial markets are facing their greatest crisis since the Great Recession of 2008-2009. At that time, Environmental, Social, and Governance (ESG) was a specialty investment; today it is a mainstream approach, with ESG worldwide assets under management of least three1 times what they were ten years ago. The first serious, global test for ESG strategies is arguably the double whammy of Covid-19 and the oil price war. 
If April 2020 is ‘only the end of the beginning’, what can we observe so far from this crisis?

First and foremost, on an aggregate basis, ESG-focused strategies have outperformed non-ESG strategies. Research by Bank of America as of 25 March showed that since the peak of the S&P© 500 in February, stocks in the top quintile by ESG ranks outperformed the market by over 5%. Even adjusting for size and sector performance, highly-ranked ESG stocks outperformed the S&P 500 by 3-4%.

Before anyone says it – twelve weeks is not the long term. However we believe that what we have seen with our own ESG investment strategies, both prior to and during this crisis so far, is no coincidence. At Candriam we have advocated for more than two decades that integrating ESG considerations within securities analysis and portfolio construction represents an essential dimension of risk assessment, in particular for so-called fat tail risks.