The COVID-19 pandemic has dramatically changed the corporate landscape. Let’s take a closer look at how ESG investments have outperformed during the COVID-19 pandemic and what the future holds.
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There’s evidence that these best practices have paid off:
In addition to an easier transition to the “new normal”, ESG-focused companies have faced less criticism from consumers—particularly after they accepted public funds. The public image of ESG-focused companies tends to be better than competitors, which could lead to a more resilient business long-term.
Shake Shack Inc.’s (SHAK) decision to return its government PPP loan after finding $10 million in the credit markets is a solid example.
There’s also some debate about what exactly constitutes an ESG investment. MIT’s Aggregate Confusion Project found a very low correlation between ESG ratings from top ratings agencies, underscoring the difficulty of evaluating ESG factors.
The COVID-19 pandemic has also had an uneven impact on ESG-focused companies. In healthcare, socially responsible hospitals and medical offices have closed for routine business and doctors’ revenue fell 50% to 90% in some cases. These dynamics could lead to consolidation in the market.
Despite these higher operating costs and other concerns, it’s difficult to quantify the impact on investors. ESG-focused companies may have more productive employees and less turnover. These could contribute to faster revenue growth and less hiring or training costs relative to non-ESG companies.
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The COVID-19 crisis has already led to a significant inflow into ESG funds as investors shift their priorities.
Investors should carefully consider the criteria used to judge the ESG attributes of a portfolio before committing any capital. With the wide array of definitions, everyone has a different idea of what it means to be ESG-focused. You should find the ideals that most closely match your investment goals.
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ESG mutual funds are an easy way to align your investment holdings with your moral objectives and potentially realize higher long-term returns due to improved brand reputation and greater resilience during crises like the current pandemic.
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