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ESG continues to outperform: Research

Sustainable companies are performing better and responsible investment funds are largely continuing to outperform the general market, according to a new report from the Responsible Investment Association Australasia (RIAA).

The report, COVID-19 and the performance of responsible investments, said in a time of massive market disruption, responsible investment funds that integrate ESG factors have outperformed the rest of the market.

"In recent years there's been a significant rising tide of interest and engagement in responsible investment: assets managed in accordance with responsible investment principles now represent 44% of Australia's total $2.25 trillion assets under management (AUM) and 72% of New Zealand's total NZ$261.4 billion AUM," RIAA said.

"The bulk of our financial institutions have made visible and public commitments to responsible investment, and at a minimum, integrate the consideration of environmental, social and governance (ESG) factors into investment decision-making."

The report said companies or assets are unlikely to thrive if they ignore ESG and other ethical issues.

It said responsible investing, including the consideration of ESG factors, helps investors identify a broad array of themes that are influencing markets and returns, and provides an important means for investors to navigate turbulent times; to avoid the most significant risks and to capture more opportunities.

"In addition to its devastating death toll, the COVID-19 pandemic has resulted in significant economic turmoil, having wide-ranging and severe impacts on many people's livelihoods and financial markets globally. These include substantial stock market declines and many countries entering into a recession," RIAA said.

"Yet while there has been widespread market downturn, the various analysis by commentators including investment managers, research houses and ratings agencies is consistently showing that more sustainable companies are performing better and responsible investment funds are outperforming the general market during this time."

The report is in line with recent findings from research houses and firms who have compared ESG funds with that of their ordinary market counterparts.

MSCI conducted a comparison of its ESG indexes compared to its parent indexes for the first quarter of 2020 finding that the ESG indexes comprehensively outperformed their parents MSCI index.

AXA Investment Managers undertook an analysis of how leading ESG companies had performed in the first quarter of 2020 compared to laggards, applying their research across equities and bond markets.

AXA IM said: "companies with the highest ESG ratings have proven more resilient in the coronavirus market crash than those with the lowest."

RIAA said the thesis that responsible investing supports stronger outcomes for society and the environment, alongside delivering superior financial returns, has been put to one of its toughest market tests with the COVID-19 pandemic.

"While the social and economic fallout from the crisis is still playing out, and most responsible investors are guided by a longer time horizon, initial analysis and results are emphatic," the report said.

"The research reinforces that responsible investment supports the achievement of better investment outcomes, and is central to navigating our way towards a more sustainable and resilient world that can mitigate or avoid such crises in the future."

Read our full COVID-19 news coverage and analysis here.

Read more: ESGRIAACOVID-19Investment Association AustralasiaAXA IMAXA Investment Managers
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