Outlook Money|July 2020
First, your worst nightmare came true. Like other global indices, the BSE Sensex plunged. And then, there was some good news. From its low of 25,381 on March 23, 2020, it recovered 60 per cent of its losses over the next three months. Now, there’s better news. Worldwide, as also in India, certain funds, dubbed ESG or “sustainable” ones, showed “resilience” during the sell-off triggered by the COVID-19 pandemic. In terms of both assets and inflows, these funds performed better than the global universe.
Towards the end of March 2020, the assets of sustainable funds, which focus on companies that rank high on Environmental, Social, and Governance (ESG) issues, were down 12 per cent from their all-time high at the close of 2019. According to a May 2020 report by Morningstar, this was lower than the 18 per cent decline for the global universe of all the funds. The sustainable funds “pulled in $45.6 billion in the first quarter of 2020” compared to “an outflow of $384.7 billion for the overall fund universe”.
In Asia, and specifically in India, the ESGs performed better than in Europe and North America. “Bolstered by new fund launches”, their assets in Asia (minus Japan) went up by 21 per cent. The report stated that “Indian (ESG) funds experienced record inflows of $507 million in first-quarter 2020”. Clearly, there is a huge investor interest in sustainable funds. At present, there are seven such funds in India with combined assets of $1 billion. Globally, there are almost 3,300 ESGs with assets of almost $840 billion.
Several reasons can explain the fascination for the sustainable funds. COVID-19 has highlighted issues related to health, safety, environment, and sustainability. “More companies are under scrutiny for decisions that affect their employees, vendors, customers, and other stakeholders. COVID-19 is a litmus test to verify a company’s true sustainability, and its commitment to ESG best practices in these difficult times,” explains Chirag Mehta, Senior Fund Manager - Alternative Investments, Quantum AMC. In the future, both companies and investors will be obsessed with non-financial parameters, apart from profits, revenues, and other financial figures and ratios. “As we rethink our personal values and priorities, several companies went out of their way to help the society. The theme of ESG or sustainability is becoming not just a luxury but indeed a necessity in the present-day scenario,” feels Jinesh Gopani, Head – Equity, Axis AMC. Social responsibility will emerge as a priority for companies.
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