Covid and ESG: How the economic crisis can give a new boost to sustainable investments

May 13, 2020 | News

Interview of Germán Saenz, Associate Director at Corporate Citizenship LatAM, by La Tercera


In the face of the recession that is coming, what will be the investors’ gaze towards the environment and sustainability? According to the experts, now more than ever the ESG (Environmental, Social and Governance) will be key for the future and the relationship with clients, suppliers, workers and the community.

“Companies and investors with a strong sense of purpose and a long-term focus will be able to better navigate this crisis and its consequences.” That was part of the letter that Larry Fink, president and founder of BlackRock, wrote a month ago about the crisis caused by Covid to the employees of his companies.

The text is full of winks towards how companies and investors should take a look more than ever at the “socially responsible investment” associated with the ESG methodology, which implies attention to the environment, Social and corporate governance. So, what will be the look towards ESG investments in times of pandemic, especially in the face of the coming economic crisis?

According to Mauricio Espinoza, senior institutional client consultant for Morningstar Latin America, in times of volatility, “we have seen that many investors are moving towards a more long-term model focused on stakeholders and sustainable investment. The companies that are already moving in that direction will be those that will be remembered for helping to overcome this crisis and, consequently, the demand to invest in these companies will increase.”

In fact, Morningstar’s analyzes reveal historical records of incoming money flows to ETFs (ETFs) and mutual funds using ESG criteria. For example, in the US, they recorded a net flow of US $ 10.5 trillion only during the first quarter of this year.

Therefore, independent of the pandemic, Germán Sáenz, associate director of Corporate Citizenship (consultancy firm specialized in strategic sustainability), believes that ESG investments will continue to be preferred, because “they are performing better than the market in general during the Covid crisis. For example, ESG funds in the MSCI index are having a better return than their traditional peers.”

An S&P Global Market Intelligence study conducted in mid-April analyzed the performance of 17 ESG funds during the crisis and found that 12 of them had lost less value than the S&P 500.

However, Sáenz acknowledges that in the face of the economic crisis, “it is very possible that companies postpone certain actions or investments that would have been made in the pre-crisis scenario. There may be a delay, but the ESG wave will not stop, “he says.

For Tamara Agnic, partner KPMG Forensic & Sustainability, the theme is clear: “Whoever believes that the answer to the challenge of the post-Covid19 revival is to seek immediate results, understood nothing at all,” she says. Even Agnic goes further: “The countries that have best managed the pandemic have several things in common. Behind Germany, South Korea, Finland, Denmark, Taiwan, Japan or Singapore, there are recurring elements: They all have good public health and education systems, they are diversified economies with great added value, they have high unionization rates and they show clear trends in gender equality”.

Rodrigo Castro, executive director of the Stakeholders Sustainable Index (SSIndex) for Latin America -a sustainability index for large companies open on the stock exchange-, estimates that precisely an ESG focus on investments will be key “in order not to lose clients in the future or others problems that may arise with suppliers, workers and in general with stakeholders. ESG provides a long-term view and that is what investors are looking for, “he says, and concludes:” When there is greater commitment from interest groups, the falls (for companies) are less in the face of crises like Covid. “