Navigating the Unknown: Amid COVID-19 crisis, ESG principles strengthen, funds outperform

The integration of environmental, social and governance (ESG) matters – both in corporate communications and investor analysis – has undoubtedly been on the rise for the last several years, but its evolution has yet to experience a market-wide crisis even close to the likes of the coronavirus pandemic.  While the concept of ‘ESG’ may not be the first thought that comes to mind when we talk about corporate and investor response to COVID-19, the foundational principles of ESG (i.e., corporate citizenship, social responsibility, employee treatment and engagement, risk management, sound governance, etc.) – are perhaps more important today than ever before.  Further, ESG can play a vital role in reducing corporate risk all the while facilitating the private sector’s heartening response to the crisis.

As such, management teams should expect more ‘S’ and ‘G’ oriented questions from investors in the weeks and months ahead, particularly as it relates to employee treatment and benefits, including healthcare and compensation, board oversight and engagement, supply chain management and contingency planning.  Now is the time to ensure and communicate brand value and resilience vis-à-vis ESG principles.  How a company responds to today’s events – both privately and publicly – will surely dictate how its many stakeholders – employees, potential employees, investors, customers and suppliers alike – will view that company in the months and years ahead. 

The silver lining?  Studies have shown that companies with a strong focus on ESG principles tend to outperform their peers and broader market indices, but what does that mean in times of economic uncertainty? Notably, these past weeks have confirmed the resilience of ESG leaders compared to broader market benchmarks in a down and turbulent market.  According to Morningstar, the MSCI World stock index fell by 14.5% in March 2020, but 62% of global ESG-focused large-cap equity funds outperformed the global tracker.  Indeed, ESG is here to stay.  As one securities analyst put it – ESG is a bear market necessity, not a bull market luxury.

Maintaining strong ESG principles during this period of significant business disruption will be vital for short, medium and long-term value creation.  Our entire team remains steadfast in its commitment to help companies navigate through this crisis to ensure we come out stronger on the other side. 

To learn more about our ESG 360SM platform, click here.