Page 20 - DIY Investor Magazine - Issue 26

The fund, which serves nine million members is to ban investments in companies involved in coal mining, tar sands or arctic drilling and has said it will shift £5.5bn to more environmentally friendly assets.2 The fund joins a growing number of pension schemes and other institutions divesting from fossil fuels and related industries.
Although historically questions have been raised over the potential for a drag on investment returns from responsible investments, recent research suggests the reverse might be true.
Data provider Morningstar examined the long term performance of a sample of Europe-based sustainable funds and found the majority of strategies had done better than non- ESG strategies over one, three, five and 10 years.3
This may partly explain why, despite the recent downturn, sustainable and ESG funds continue to attract a growing number of investors, with US ESG funds drawing a record US$10.5bn of new investment in the first quarter of 2020
alone.
4
Source: Morningstar research data as of 30 March 2020
While much of this growth has come in equity markets, sustainable investment is also increasingly taking centre stage across global fixed income markets.
In Europe, recent growth in this area has seen a particularly strong focus on social bonds, designed to deliver positive social impacts. The market grew by an estimated 43%to €66bn in the three months to 30 June 2020.5
While much of this growth came as agencies and supranational issuers sought to ease the economic and social impacts of the pandemic, other areas of ESG fixed income investing also see healthy growth.
Issuance of impact bonds alone surged to US$300bn last year6 and interest in ESG across other areas of fixed income investment continues to grow steadily.
While ESG rises rapidly up the investment agenda, Newton portfolio manager Scott Freedman says he believes the Covid-19 pandemic and its aftermath will leave a lasting legacy
for global markets and could strengthen the need to adopt a fairer, more sustainable investment approach.
“The crisis has made social and economic concerns much more pressing than they were before the pandemic and has actually really kick started some of the more recent ‘green’ initiatives and perspectives we are seeing today.
“Going forward, companies will likely face great scrutiny on how they dealt with the pandemic at its height but also whether they can sustain appropriate performance while supporting a broad range of stakeholders in what could prove to be a long, slow recovery,” he concludes.
DIY Investor Magazine | Dec 2020 20