It should be expected that the COVID 19 experience may have a profound impact on ESG investing behaviours and related topics.
ESG investing will continue its decades-long trajectory of increasing complexity, which has featured:
- The emergence of a more formally acknowledged array of topics (within categories of environment, social and governance)
- The acceptance of a widely recognized approach to information gathering and reporting, with emerging global leaders
- The overall increase in complexity and sophistication of ESG-related analysis
- A dramatically increased volume of information, and decreased reaction time
- A wider range of ESG related products, and of business models for support
Despite these changes and growing complexities, two foundational themes have remained consistent over the past 30 years, and remain relevant to the majority of ESG investors today.
- Values – can investing behavior reflect the values of the investor? Will I do good?
- Performance – will the ESG investor experience better or worse risk adjusted returns? Will I do well?
Changes to ESG investing caused by the COVID 19 experience are most likely to pertain to one or both of these themes. Let’s consider values first.
For many, ESG investing is seen as an expression of values. Values are thought to be relatively consistent over time, but the appropriateness of specific behavior (as it reflects those values), and the ways we might chose to prioritize those values, may change.
For example, in 1987 a socially responsible investor’s values may have moved them to exclude investing in South Africa because of apartheid. Values related to perceived political and social injustice likely still exist, but ESG considerations in recent years have been more with respect to global warming, carbon-foot-print-related behaviour, and extractive industries. These changes reflect a reprioritization of values over time.
Will ESG investors give more consideration to specific values as a result of the responses to the pandemic? Will these investors now prioritize their values differently? I believe many will.
The recent intense focus on the health of individuals, communities and countries can been understood as the expression of values. Some would argue that the recent changes associated with the global pandemic suggest a specific reprioritization of values: human health over planetary health.
As the priority these pandemic-inspired values come to the forefront, there will be an increased focus on other ESG topics and investing behaviours, such as:
- Do we come to think of “sustainability” differently? Will this be more about business interruption and supply chains, than about renewable energy?
- As such, will North American ESG investors (and consumers) be more inclined to support business activities occurring primarily on this continent as a values-based priority?
- Will there be new priorities in employee engagement and support? Will work-from-home options become expected?
- Will it be increasingly considered appropriate to favour and pay more for locally produced commodities and products?
- Will impact investing opportunities increasingly feature the health sciences sector in general, and pandemic response and personal protective equipment in particular?
Opportunities arise from disruption: the greater the disruption, the greater the opportunities. Existing businesses and entrepreneurs alike will find business opportunities emerge from the COVID 19 experience. Good business ideas are made possible by investors, and ESG investors will have new opportunities to do good with their funds. Will they also do well with their investments? Will their post pandemic performance improve? I will consider these questions in Part 2.
Posted with permission. Original content by:
Associate Portfolio Manager
Manager of ESG Integration
Rod Burylo, CIM, FCSI is Manager of ESG Integration and Associate Portfolio Manager for Croft Financial Group. Rod is an Advisor of the Year Award winner, 2019 IFSE Institute Award for Financial Literacy Champion finalist, international speaker, and business author, including his most recent book: The Wealthy Buddhist…Buddhist Ethics, Right Livelihood, and the Value of Money.
None of the information provided by Rod Burylo should be understood as a recommendation for any particular investment, product, strategy, or service. Readers should consult a professional for guidance regarding their personal circumstances.