ESG funds outperform amid market downturn

Funds with environmental, social and governance criteria have outperformed the broader market during the Covid-19 crisis, according to research by S&P Global.

The index provider analysed 17 exchange-traded and mutual funds with over $250 million in assets under management that select stocks for investment based partly on ESG themes. Among those funds, 12 had lost less value compared with the 13.7% decline suffered by the S&P 500 in the year to 9 April.

The top performer in the analysis, the Brown Advisory Sustainable Growth Fund, had a negative 5.4% price change, followed by Nuveen Winslow Large-Cap Growth ESG Fund, which recorded a 7.4% decline.

The findings echoed research conducted by Federated Hermes’ global equities team that found that companies with poor or worsening social practices consistently underperformed their peers by 15bps each month since the beginning of 2009.

In a joint study of government bonds, conducted with Beyond Ratings, the asset manager also found that countries with the highest ESG scores had the lowest average corporate default swap (CDS) spreads, while those with the lowest ESG scores had the highest average CDS spreads.

Social factors once deemed to be non-financial or extra-financial concerns, have very clearly demonstrated that they are in fact financial matters indeed, said Eoin Murray, head of investment, at the international business of Federated Hermes.